Equity Analysis /
Egypt

Orascom Development Egypt: 1Q19 – Cairo kicks in

    Fantastic sales kick off the year

    Sales in 1Q19 soared to EGP1.5 billion, 3.8x sales in 1Q18 and 2.8x sales in 4Q18, due to the launch of O West, the company’s first project in Cairo. It is worth noting that the response to the launch was evidently highly positive, especially in the context of a first quarter, a relatively slow time in real estate. Also noteworthy is that, excluding the EGP936.3 million in O West sales, 1Q19 sales would still portray a 47.2% y/y and 7.1% q/q increase due to the impressive sales performance in Makadi Heights which achieved 1Q19 sales of EGP135.8 million, up 123.4% q/q and compared to virtually nothing in 1Q18. Sales in El Gouna to foreign customers constituted 20.0% of El Gouna sales in 1Q19.

    Hotel operations in El Gouna continued to impress with the rise in hotel occupancy rate to 83.0% in 1Q19 from 80.0% in 1Q18 and the increase in TRevPAR to EGP1,326 in 1Q19 from EGP1,125 in 1Q18. Hotel revenue in 1Q19, 42.7% of total revenue, reached EGP357.3 million, up 20.5% y/y and down 6.2% q/q due to seasonality.

    Net profit in 1Q19 reached EGP111.3 million, up 33.9% y/y and down 50.8% q/q.

    Margins decreased in 1Q19 on the back of O West currently incurring more expenses than revenue due to the current minimal recognized revenue associated with the land portion of sold units. Margins in O West should improve in 2020 with the recognition of its revenue as construction commences and progresses.

    Net debt decreased to EGP2.7 billion at the end of 1Q19 from EGP2.9 billion at the end of FY18.

    A solid step towards big FY19 sales target

    Orascom Development Egypt (ORHD) is targeting FY19 sales of EGP6.5-7.0 billion, which implies an almost tripling of FY18 sales, due to O West being part of the sales mix this year. Given this great first quarter, the company has set the stage well for achieving its FY19 sales target.

    Maintain Overweight

    We maintain our Overweight recommendation of ORHD which also remains one of our two top picks in the sector. Our EGP14.71/share FV is mostly supported by the 20.4 million sqm of residual land in El Gouna which we value at USD32/sqm and convert to EGP using an EGP/USD exchange rate of 17.3.