Solid sales continue in 2Q19
- Sales in 2Q19 continued to rise, following a fantastic 1Q19. 2Q19 sales surged to EGP2.7 billion, 3.4x sales in 2Q18 and 75.5% higher than 1Q19 sales. The rise in sales was supported by O West, which contributed EGP1.9 billion to 2Q19 sales. El Gouna, which is still witnessing demand from foreign customers, contributed EGP765.3 million to 2Q19 sales, with 1H19 average selling prices increasing 19.3% y/y to EGP46,984/sqm. Makadi Heights contributed EGP88.8 million to 2Q19 sales.
- Hotel operations in El Gouna continued its solid performance with the rise in hotel occupancy rate to 84.0% in 1H19 from 80.0% in 1H18 and the increase in TRevPAR to EGP1,379 in 1H19 from EGP1,178 in 1H18. Revenue from Taba Heights increased 90.7% y/y to EGP79.7 million in 1H19, backed by the increase in hotel occupancy rate to 39.0% in 1H19 from 22.0% in 1H18, rates that should now rise further following the German Ministry of Foreign Affairs’ removal of travel bans on all German airlines to fly to Taba Heights.
- Net profit increased 143.1% y/y, supported by FX gains, and 19.2% q/q to EGP198.6 million.
- GPM decreased y/y and q/q, and NPM increased y/y and decreased q/q.
- Net debt decreased from EGP2.7 billion at the end of 1Q19 to EGP2.5 billion at the end of 2Q19.
Likely to exceed FY19 sales target
With 1H19 sales of EGP4.2 billion, up 253.2% y/y, Orascom Development Egypt (ORHD) can comfortably exceed its FY19 sales target of EGP6.5-7.0 billion, especially in light of the September 2019 launches of a new high-end phase in El Gouna and a high-end apartment phase in O West. 2H19 should also witness the opening of the two Thomas Cook hotels in El Gouna. The company’s future plans also include the inauguration of a concert hall and conference center.
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. Adjusting the exchange rate to the current EGP16.6/USD would yield a FV of EGP14.30/share.