OIH: Higher net finance income rescues the performance; Downgrade to Equalweight
- Topline shrinks on lower revenues from Pakistani cables, the highest contributor
- Bottom line losses shrink on lower booked provisions and net finance income
- Downgrade to Equalweight post share price rally; Koryolink and strategic direction remain vague
Topline shrinks on lower revenues from Pakistani cables, the highest contributor
OIH reported 2020 revenues of EGP730.5 million, compared to EGP811.4 million in 2019, a decline of 10.0% YoY. Cables business (Pakistani Cables, submarine fiber optic cable operator in Pakistan) was the largest contributor to revenues, with 91% as of 2020 (-1.3pps YoY), recording EGP664.2 million (-11.1% YoY). Investment Property (Victore Investment Holding, RE investment in Sao Paulo, Brazil) contributed 8.4% to total revenues in 2020 (+11.7pps YoY), recording EGP61.6 million (+0.53% YoY).
Gross Profit dropped to EGP355.4 million in 2020, down from EGP418.3 million in 2019, implying a decline of 15% YoY, mainly on lower revenues, given a decline of 5% YoY COGS. Accordingly, GPM dropped to 49% in 2020 (-6pps YoY).
No investment income recorded since Koryolink is still impaired
OIH did not book any net investment income in 2020 nor 2019, on the back of the impairment of Koryolink’s profits as the management had previously reported that they have not reached any official agreement with the Korean government. In addition, the investment income reported in the financials amounting to EGP105.7 million is related to the ownership in SRWA which is no more reported since the ownership was transferred to Orascom Financial Holding (OFH) in early 2021.
Bottom line losses shrink on lower booked provisions and net finance income
OIH reported a net loss from continued operations of EGP60.8 million in 2020, compared to net losses of EGP402.5 million in 2019, backed up by lower booked provisions, irregular interest income gain of EGP61.7 million realized in 1Q20 related to the Brazilian Investment and lower FX losses.
The bottom-line was supported by the lower booked provisions in 2020 amounting to EGP22.5 million compared to EGP89.87 million in 2019 (- 75% YoY), as a result of the split.
OIH recorded a net finance income in 2020 (EGP20.2 million), compared to net finance costs of EGP170.4 million in 2019. This came in on an interest income of EGP74.1 million compared to EGP14.0 million in 2019, as a result of the early settlement, at a discount, of a loan from an international bank related to the Brazilian Investment contributing EGP61.7 million to the interest income gain (83% of the reported gain). Moreover, interest cost simultaneously declined from EGP149.8 million in 2019 to EGP45.7 million in 2020 (-69% YoY).
FX losses recorded EGP7.2 million in 2020, compared to FX losses of EGP33.6 million in 2019, implying a decline of 79% YoY, which also supported the bottom line.
Downgrade to Equalweight post share price rally; Koryolink and strategic direction remain vague
We downgrade our overweight recommendation on OIH to an Equalweight recommendation on FV of EGP0.22/share, since share price surged since our latest valuation update, and despite losses shrinking in 2020 compared to 2019, since it hinges on on-off gains.
However, some potential catalysts that could improve the company’s operational performance:
A clear resolution on Koryolink’s profit repatriation or sustainable dividend payout in euros, which could potentially add EGP0.54 per share to OIH FV.
Making good use of the receivables of the Lebanese contract termination.
A clear investment strategy/value-accretive acquisitions over the next years.
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