Flash Report /
Egypt

Arabia Investments Holding: Management webinar key takeaways

  • 2020 major highlights

  • 2021 growth strategy

  • Legacy issues and financial implications

Al Ahly Pharos Securities Brokerage
18 January 2021

2020 Major Highlights

Construction and Building Materials

  • Kahromika has recorded the highest bids success rate in 4Q20, winning 5 bids out of 6, building a backlog worth EGP500 mn.

  • Kahromika has managed to close all overdue projects, whereby the delay in the remaining undeliverable projects is from the client-side.

  • Toblat has maintained resilient growth and is expected to tap its pre-pandemic sales levels in 4Q20.

Non-Banking Financial Services (NBFS)

  • UE Finance met its 2020 targets by September 2020.

  • Rawaj hasrecently received the consumerfinance license and is expected to start operations by 2H21.

  • Takhseem, the new factoring arm is under construction and hasstarted operations in 4Q20 under the leasing arm, UE finance .

Given subsidiaries’ performance in 2020, AIH is expected to record solid financial performance compared to historical figures.

2021 Growth Strategy

Management focusing on the creation of exceptional growth

  • The company aims to double the size of the business over the next 3 years.

  • Planning the splitting AIH into two separate holding listed companies by 1Q22, where one company will include all the traditional investments (Construction and Materials) and the other will include all the NBFS investments.

  • Creating a single corporate identity for all the subsidiaries in the group through launching a single corporate customer-facing brand.

  • Intending to use the proceeds from the recent sale of the 67.5 mn treasury shares, which amounted to EGP46.5 mn to expand the NBFS arm.

  • Accelerating the growth of the company and creating value through building an efficient and flexible capital structure as well as increasing the volume and the diversity of funding to finance all the future plans of the company.

  • Implementing two separate sukuk issuances; one convertible and one callable, whereby one issuance will be finalized by 3Q21, amounting to EGP200-300 mn.

  • Achieving economies of scale and minimizing managerial costs through centralization of various functions including: Risk management, HR, Legal, IT and Treasury.

  • Digitizing of the various functions carried out by the company allowing for simpler, faster, and easier transactions for all the customers.

  • Establishing a fully-fledged NBFS company in the near future by adding new activities including insurance and mortgage financing.

Construction and Building Materials: Resilient and outstanding management practices to enhance performance

Kahromika

  • Regionally expanding through strategic alliances with regional and international groups.

  • Enhancing internal capacity with the target of improving margins in 2021.

  • Working more on short-term projects thereby reducing pricing risks.

Toblat

  • Focusing on building a wider customer base.

  • Adding new product lines and providing new services.

  • Making use of the unutilized capacities of its factory.

Non-Banking Financial Services (NBFS): Proactive regulator support and increasing demand pave out the way for exponential growth

UE Finance

  • Aims to target larger corporates and tickets, with a target ticket size of EGP100 mn, compared to a current SMEs focused with portfolio average ticket size of EGP45 mn.

  • IFRS9 Implementation: No major negative impact is expected on the financials due to solid cash flows generation ability; driven by the extremely low default rate, which stands at 0.05% of the total portfolio.

  • Doubling the number of new bookings through:

  • A capital increase directed to UE Finance only, making room for portfolio expansion.

  • Securitizing a portion of the portfolio that is worth EGP1.5 bn. According to the management, this is expected to take place by the end of 1Q21 or the beginning of 2Q21. This will generate a one-time profit that will depend on the quality of portfolio.

Rawaj

  • Focusing on digitizing the operations of the business to maintain simpler and easier operations with the customer.

  • Implementing a customer-centered approach within the new consumer finance activities that are expected to start in 2H21.

  • Giving the business more room for funding and expansion through loans and future sukuk issuances, thus allowing the Debt-to-Equity ratio to stand at 1.9x, compared to 1.4x currently.

Legacy Issues and Financial Implications

  • The company has started implementing a plan that helped in closing 50% of the legacy issues by the end of 2020 and is expected to close 100% of the issues in 2Q21.

  • The management has outlined that the current profitability of the business is sufficient to absorb any financial implications of unresolved issues and still deliver growth.