Earnings Report /
Egypt

OIH: Bottom-line still in the red despite a strong support from one-off gains

  • Revenues reported from Orascom Pyramids (OPE), after the sale of the Pakistani Cables, stabilize top-line growth

  • Bottom-line still in the red despite one-off gains

  • Upgrade to Overweight on upside potential; Release of a clear investment strategy is key to unlock upside

Al Ahly Pharos Securities Brokerage
2 April 2022

Revenues reported from Orascom Pyramids (OPE), after the sale of the Pakistani Cables, stabilize top-line growth annually

OIH reported 2021 revenues from continuing operations of EGP27.9 million, compared to EGP4.7 million in 2020, implying a 495% y/y growth. It is worth mentioning that revenues now include Orascom Pyramids (OPE) only after excluding the Pakistani Cables investment after its sale in January, in addition, the investment property in Brazil no longer contributes any revenues after its sale last October.

Bottom-line still in the red despite one-off gains

Gross profit increased to EGP153.6 million in 2021, up from a loss of EGP55.6 million in 2020 despite a 25% increase in COGS. This is mainly attributable to the other revenues recorded in 2021 amounting to EGP200.7 million compared to none in 2020. Other revenues are related to the settlement agreement between OIH and Victore investment (real-estate investment property in Brazil), since the contract had a guaranteed cumulative return of 10% over 4 years and the return did not satisfy the condition. Accordingly, OIH received the value of a floor and a half (equivalent to 6 offices in the building) with a value of EGP200.1 million recorded under other revenues in the income statement. Moreover, the increase was partially supported by the higher revenues. Therefore, GPM as of 2021 stood at 550% in 2021 which further supports that it hinges on the other revenues.

EBIT recorded a loss of EGP45.0 million in 2021 compared to EGP205.3 million in 2020 (-78% y/y). The full year improvement came despite higher other expenses and provisions (+61% y/y), higher depreciation (+45% y/y), higher impairment of financial assets (+848% y/y). However, employee expenses which declined by 20% y/y, and the positive growth in gross profit were sufficient to partially wipe out the negative effects of increased expenses on the EBIT bringing it at a relatively higher point in the red zone.

Net finance costs recorded EGP10.2 million in 2021 compared to net finance income of EGP64 million in 2020. It is worth noting that the significant discrepancy is mainly related to the one-off rise in 2020 results as the company had recorded a high amount of net finance income in 1Q20 as a result of the early settlement, at a discount, of a loan from an international bank related to the Brazilian Investment. Accordingly, the net finance income is overestimated in 2020.

FX differences stood at EGP16.5 million, compared to EGP0.5 million in 2020 which further supported the bottom-line pushing it a little higher in the red area than 2020’s bottom-line.

OIH still did not book any net investment income on the back of the impairment of Koryolink’s profits as management had previously reported that they have not reached any official agreement with the Korean government.

Therefore, the company’s losses shrank on an annual basis, where net loss from continued operations dropped by 45% y/y to record EGP86.4 million in 2021. The significant increase supported by the other revenues, which if excluded, bottom-line loss would have recorded EGP287.1 million which is 83% higher than 2020. Moreover, the positive FX differences also supported the improvement in the bottom-line.

Upgrade to Overweight on upside potential; Release of a clear investment strategy is key to unlock upside

OIH has finalized the sale of its investment in Brazil in October 2021. The proceeds of the sale amounted to approximately USD77.6 million which translated to approximately EGP1.211 billion, and EGP0.23/OIH share. This reflected on the cash balance of the company as of December 2021. Alternatively, the sale of the Pakistani cables was finalized last January, where the proceeds of the sale amounted to approximately USD35 million, translating into approximately EGP550 million, and EGP0.10/OIH share. However, the proceeds are not yet recognized in the company’s consolidated cash balance as of December 2021.

OIH’s BOD approved several decisions regarding the company’s future investments plans that are now awaiting approval in the OGM scheduled on the 8th of May, 2022. The decisions include:

1. Reinvesting all the proceeds realized from the sale of the company’s investments over the past months, therefore, there is no proposed cash dividends.

2. Focusing on Africa-based Investments in the renewable energy and real estate touristic development industries over 2022. However, the amount allocated under each industry and investment, nor the time frame of the investments are determined. However, the investments are expected to be finalized in 2022.

3. Acquiring 100% of an SPV located in Luxembourg, called OT Angola to manage the future investments in Africa.

4. Entering into a technical collaboration and advisory services master agreement with a company from Ora Developers Group, a related party, in order to provide services and project management support to OIH in the future African projects.

We are currently keeping an eye on some catalysts that that could improve the company’s operational performance over the next years:

1. A clear resolution on Koryolink’s profit repatriation or sustainable dividend payout in euros, which could potentially add EGP0.54/share to OIH FV. 2. A clear plan on the company’s investment plans (amount allocated and investments’ time frame).