Market Updates
Stories in Focus
Unemployment reaches 13.2% in 1Q2013
The unemployment rate in Egypt rose to 13.2% in 1Q2013, up from 13% in 4Q2012, according to state statistics body CAPMAS, Ahram Online reported. According to CAPMAS, the number of working Egyptians reached 23.6 million, with the total labor force registering 27.2 million. The number of unemployed increased by 63,000 in 1Q2013. Unemployment among male workers reached 9.7%, while among women it was 25%. Job seekers in urban areas shrunk to 15.7% of the total labor force in 1Q2013, compared to 16.9% in 4Q2012. Meanwhile, unemployment in Egypt’s rural areas stood at 11.3% in 1Q2013. The agriculture and fishing sectors employed the largest number of workers, namely 6.3 million, in 1Q2013.
Natural gas production drops by 4.8% y-o-y in March 2013
Natural gas production dropped to 3.72 million metric tons of oil equivalent (4.5 bcm) in March 2013, compared to 3.91 million in March 2012, the Egyptian Cabinet said in an e-mailed statement, Bloomberg reported. Meanwhile, according to the statement, the value of natural gas exports rose 6.6% y-o-y to USD193 million.
Cabinet approves draft law to settle investor disputes
The Egyptian Cabinet approved a draft law to settle investor disputes, it said in an e-mailed statement, Bloomberg reported. The draft law allows a committee to recommend the amendment of existing contracts or the drafting of new ones in place of those signed between investors and the state, which courts have issued final rulings on; as well as recommendations for courts to take into account. Results reached by the committee in agreement between parties of the settlement will be final and obligatory after the Cabinet’s approval, without need for further judicial or administrative measures.
President Morsi wants Egypt to stop importing wheat within four years
Egypt wants to stop importing wheat within four years and rely on its local production, President Mohamed Morsi said, Reuters reported. Morsi said that, in two years, local production will achieve more than 80% of Egypt’s needs, and that the country will seek in four years to not import wheat. Egypt usually imports about 10 million tons a year but plans this year to buy only 4-5 million tons from abroad and make up the remainder of its needs from increased local production and cutting back the amount it allocates for storage. Supplies Minister Bassem Ouda has said he expects a harvest of 9.5 million tons of domestic wheat during this season, which runs from April until early June 2013. About half the harvest ends up in government flour mills, with the rest being sold for feed and other purposes.
CIB 1Q2013: Record earnings on NIM hike despite high COR and muted loan growth
Commercial International Bank (COMI EY, Price: EGP34.03, FV: EGP40.00, Add, P/E FY2013e: 8.3x) released its financial results for the quarter ending in March 2013. Net income was EGP658 million (+11.9% q-o-q, +30.2% y-o-y), 4.5% higher than our estimate of EGP629 million, while operating income was EGP1.57 billion (+1.7% q-o-q, +32.1% y-o-y). Net interest income was EGP1.14 billion (+5.1% q-o-q, +30.8% y-o-y) in 1Q2013, while non-interest income was EGP431 million (-6.3% q-o-q, +35.7% y-o-y). CIB’s OPEX-to-average-assets ratio was 196 bps in 1Q2013, slightly higher than the bank’s trailing four-quarter average of 184 bps, yet the bank’s cost-to-income ratio continued to be healthy (30.2%) on robust growth in operating income.
Gross loans stood at EGP45.4 billion in March 2013 (+2.4% q-o-q, +8.1% y-o-y). During the quarter, the translation of the appreciating FCY loans (versus EGP) has fully compensated for the drop in their balance, with retail (mostly LCY) loans being the only contributor to the growth in loans (+5.2% q-o-q, +22.5% y-o-y, +69.8% since December 2010). Deposits reached EGP86.1 billion in March 2013 (+9.3% q-o-q, +16.0% y-o-y), also helped by the abovementioned FCY deposit base translation effect (37% of deposit base in FCY) but also as the bank replaces EGP3.2 billion repo position with customer deposits. The bank’s LTD ratio stood at 52.2% in March 2013, its lowest level in at least 10 quarters. As of the end of March 2013, approximately 38% of the bank’s assets were invested in government securities, 65% of which were in bonds. CIB added EGP206 million to its NPL book over the quarter (+12.8% and +49% y-o-y, +81% since December 2010), with the bank’s corporate segment being the only contributor to this growth, mostly from the tourism and textile exposure as cited in management’s earnings release.
CIB reported another strong set of results, with NIMs growing for the eighth consecutive quarter to settle comfortably above the 500 bps level. The bank’s lending yield continued to grow on higher corridor levels and on accordingly upward-revised lending portfolio pricing. The bank’s earnings figure for the quarter (EGP678 million, ROAE: 25%, ROAA: 2.7%) hit a new record despite elevated COR levels, with the robust growth in banking income and controlled operating costs. On the balance sheet, corporate loan growth continued to be muted and retail loans maintained their momentum. The bank’s NPL ratio continued to climb, reaching 4.0% as of the end of the quarter, while provisions coverage was 122%. Owing to the prevailing high interest rate environment and the bank’s investment in high-yielding government securities, CIB has thus far been able to absorb asset quality shocks while maintaining high profitability levels. This has resolved a significant part of the asset quality overhang (NPL book +81% since December 2010) with minimal damages. CIB’s shares are trading at a P/E FY2013e of 8.3x and a P/B FY2013e of 1.6x (ROAE FY2013e: 21.0%). We maintain our assumptions and fair value at EGP40.00/share. We assign the stock an ‘Add’ recommendation on a 17.5% upside and relatively cheap multiples versus its own historical levels.
CAE 1Q2013: Earnings beat estimates on strong banking income despite weak loan performance
Credit Agricole Egypt (CIEB EY, Price: EGP10.63, FV: EGP14.00, Buy, P/E FY2013e: 6.6x) released its 1Q2013 results. Net income came in at EGP146 million (+51.5% q-o-q, +14.8% y-o-y). Operating income was EGP399 million (+3.3% q-o-q, +14.9% y-o-y), while net interest income was EGP273 million (+2.5% q-o-q, +10.4% y-o-y). NIM remained strong at 416 bps, in line with the trailing four-quarter average of 412 bps, while non-interest income reached EGP126 million (+5.1% q-o-q, +25.9% y-o-y). CAE’s cost-to-income reached 45.4% in 1Q2013 versus 54.1% in 4Q2012 (an exceptionally high quarter) and 48.3% in 1Q2012. CAE booked EGP28 million, 82 bps, in loan loss provisions, lower than 4Q2012’s 159 bps and higher than 1Q2012’s 56 bps.
Gross loans stood at EGP14 billion in March 2013 (+4.3% q-o-q, +7.6% y-o-y), where roughly 50% of q-o-q additions is attributed to the depreciation of the EGP. Corporate loans grew by 4.9% over the quarter and 8.2% y-o-y to EGP10.6 billion. The bank's retail book added 2.4% this quarter and 5.3% y-o-y to EGP3.4 billion (24.0% of loan book). Customer deposits were EGP25 billion (+8.3% q-o-q, +18.9% y-o-y). The bank's liquidity has therefore increased, with its loans-to-deposits ratio reaching 57.0% in March 2013. The bank’s asset quality remained stable over the quarter: NPL ratio stood at 1.95%, provision coverage at 179%, where the bank’s NPL book added 2.3% q-o-q to reach EGP490 million. CAE’s CAR was 12.6% in March 2013, higher than last quarter’s 11.6%.
CAE delivered a strong quarter, beating both our and consensus estimates by 15% and 23%, respectively, mostly on stronger than expected banking income. Annualized ROAE and ROAA were 25.8% and 2.0%, respectively, for the quarter, in line with 1Q2012’s respective 25.9% and 1.9%. NIMs remained strong, continuing to be comfortably above the 400 bps levels, driving net interest income to record levels. This is despite weak loan book growth and limited investment in treasury securities (24% of assets) on a c.60 bps y-o-y rise in financing rate. The bank’s loan book continued to be weak, adding 4.3% q-o-q, of which around 50% is attributed to the depreciation of the EGP (translation effect). Asset quality was stable over the quarter (NPL ratio: 2.0%, provisions coverage: 178%). CAE’s shares are trading at a P/E FY2013e of 6.6x and a P/B FY2013e of 1.2x (ROAE FY2013e: 19.0%). We maintain our target price of EGP14.00 and our “Buy” recommendation on an attractive 32% upside and cheap multiples.
OW 1Q2013 results:Sales grow 14.3% y-o-y, mainly driven by exports; margins improve on back of weaker EGP; net income pressured by FX losses
Oriental Weavers (OW) (ORWE EY, Price: EGP21.66, FV: EGP28.65, Buy, P/E FY2012e: 5.2x) released its 1Q2012 financial results yesterday, with revenues coming in at EGP1,368.85 million, +14.3% y-o-y, beating our estimate of EGP1,264.42 million. Local sales grew by 12.5% y-o-y to EGP596.43 million, whereas export sales were up 15.8% y-o-y to EGP772.42 million. This was mainly driven by: 1) a 47% y-o-y increase in Europe sales on the back of gaining market share and securing new partnership agreements with key distributors, 2) a 45% y-o-y increase in Africa sales, and 3) a 14% y-o-y increase in US and Canada sales.
Gross profit came in at EGP176.25 million during the quarter, +38.1% y-o-y, implying a GPM of 12.8% in 1Q2013 versus 10.7% in 1Q2012 as the company benefitted from a weaker EGP. The increase in GPM came despite the 11.5% y-o-y increase in COGS.Meanwhile, EBITDA stood at EGP241.32 million in 1Q2013, +26.7% y-o-y, yielding an EBITDA margin of 17.6% versus 15.9% in 1Q2012. Net profit came in at EGP111.55 million, +29.1% y-o-y, compared to EGP86.43 million in 1Q2012, broadly in line with our estimates of EGP117.52 million. Below the operational line, OW was pressured by an FX loss of EGP22.12 in 1Q2013. CFO improved y-o-y during the quarter by a solid 64.8%, mainly resulting from an improvement in the collections of receivables and a drop in finance expenses. We will issue a more detailed comment today.
PHD beats our and market estimates; reports net income for first time since revolution
Palm Hills Developments (PHD) (PHDC EY, Price: EGP2.37, FV: EGP2.33, Hold, P/E FY2013e: n/m) released a strong set of results yesterday as it reported profits for the first time since the 2011 revolution. Revenues came in at EGP141.88 million in 1Q2013, compared to revenues of EGP28.04 million and EGP194.06 million in 1Q2012 and 4Q2012, respectively, +405.9% y-o-y and -26.9% q-o-q.This compares to our estimate of EGP114.50 million and the consensus estimate of EGP105.27 million. The significant y-o-y increase in revenues is mainly on the back of higher deliveries and land revenues resulting from standalone unit sales. Gross profit stood at EGP66.84 million in 1Q2013 versus a gross profit of EGP8.98 million in 1Q2012 and a gross loss of EGP28.13 in 4Q2012. This implies a gross profit margin of 47.1% during the quarter, compared to 32.0% reported during the corresponding period last year. The y-o-y increase in margins is mainly attributable to the delivery of high-margin units and higher land revenues, in our view. Net income of EGP45.35 million in 1Q2013 compared to net losses of EGP16.29 million and EGP51.36 million in 1Q2012 and 4Q2012, respectively. The number outperformed both our estimate of a net loss of EGP2.14 million and the consensus estimate of a net loss of EGP4.00 million. PHD booked gross sales of c.EGP366 million and cancellations of c.EGP400 million during 1Q2013, resulting into a negative net sales figure of EGP34 million. We will send a more detailed comment shortly.
Eastern Tobacco’s 3Q2012/13 results come above market estimates on FX, capital gains; company suffered significant margin compression
Eastern Tobacco (EAST EY, Price: EGP99.00, FV: EGP114.00, Add, P/E FY2013e: 6.9x) released 3Q2012/13 results for the period ending March 2013. 3Q2012/13 net profit came in at EGP254 million, +16.6% y-o-y, surpassing our estimates (EGP180 million) and market consensus (EGP229 million). It is worth noting, however, that the results included an unusual income (FX and capital gains) of EGP41 million versus EGP8 million in 3Q2011/12, which we believe is the reason behind the discrepancy between the company’s bottom line and market estimates. Eastern’s sales grew 15.5% y-o-y; however, the company witnessed significant margin compression across the board as COGS and marketing expenses surged. Gross profit came in at EGP497 million, unchanged compared to 3Q2011/12, implying a GPM of 37.1% versus 42.9% in the comparable period of last year. We believe Eastern’s COGS were pressured by the EGP depreciation as the company imports 100% of its raw material needs. EBITDA margin also weakened to 32.6% versus 40% last year, as selling and marketing expenses almost doubled to EGP59 million versus EGP31 million in 3Q2011/12. Effective tax rate came in higher at 24.7% in 3Q2012/13 versus 19.5% in 3Q2011/12. Excluding the unusual gains, net profit margin stood at 15.9% in 3Q2012/13 versus 18.1% in 3Q2011/12. We will issue a detailed comment shortly.
Al Borsa: NUCA to launch 200 units in Madinaty, Al Rehab within next few days
Al Borsa newspaper reported that the New Urban Communities Authority (NUCA) will offer 200 units in Talaat Mostafa Group Holding’s (TMG) (TMGH EY, Price: EGP4.14, FV: EGP6.00, Buy, P/E FY2013e: 13.5x) Madinaty and Al Rehab projects within the next few days. The offering process will be done through the Housing and Development Bank (HDBK EY, Price: EGP15.51, FV: EGP14.20, Hold, P/E FY2013e: 12.0x). It is worth noting that TMG has delivered c.2,800 units in both projects to the government to date. On a separate note, the Vice Chairman of NUCA said that 50 real estate companies showed interest to partner with the government to develop district 9 in Sixth of October City.
OTMT 1Q2013 results: Net profit at EGP525 million
OTMT (OTMT EY, Price: EGP0.50, FV: EGP0.64, Buy, P/E FY2013e: n/m) released earnings for 1Q2013. Revenues came in at EGP716 million, up 31.1% from EGP546 million in the period from November 2011 to March 2012. EBITDA grew by 67.2% from EGP256 million in November 2011 to March 2012 to EGP428 million in 1Q2013. Net profit after minority for the quarter totaled EGP438 million, 45% less than EGP961 million generated in November 2011 to March 2012 on lower interest income.
Al Mal: Baskindale surprised by OTH board recommendation