Earnings Report /
Egypt

Orascom Development Egypt: Q2 results – hotel revenue takes the hit

  • Hotel revenue was hit in 2Q20, falling 96.7% y/y and 95.2% q/q to EGP12.8 million

  • Real estate sales in 2Q20 declined 50.1% y/y and 13.0% q/q to EGP1.3 billion

  • Our EGP8.45/share FV conservatively assumes zero hotel revenue in FY20; maintain Overweight

Al Ahly Pharos Securities Brokerage
16 August 2020

Covid-19 hits hotel revenue

  • ORHD’s hotel revenue was hit in 2Q20, falling 96.7% y/y and 95.2% q/q to EGP12.8 million as a result of Covid-19-triggered travel restrictions and the closure of hotels from March 19, 2020, to May 15, 2020, at which point hotels were allowed to reopen at a 25.0% cap that was later raised to 50.0% on June 1, 2020. ORHD’s hotels were among the first hotels in Egypt to be allowed by the Tourism and Health Ministries to reopen. TRevPAR in El Gouna hotels declined to EGP1,108 in 1H20 from EGP1,379 in 1H19, and the occupancy rate in El Gouna hotels declined to 33.0% in 1H20 from 84.0% in 1H19.

  • Compared to the drop in hotel revenue, the annual decline in 2Q20 total revenue was less pronounced, decreasing 22.9% y/y to EGP1.0 billion, due to land revenue kicking in with EGP232.0 million and real estate revenue dropping only 16.4% y/y to EGP633.2 million. Cost-cutting measures led to the rise in 2Q20 GPM to 35.0% from 30.5% in 2Q19 and 25.1% in 1Q20. NPM declined to 8.2% in 2Q20 from 15.1% in 2Q19 and 10.7% in 1Q20.

  • Real estate sales in 2Q20 declined 50.1% y/y and 13.0% q/q to EGP1.3 billion, bringing 1H20 sales to EGP2.9 billion, down 31.7% y/y. Sales cancellation rate remained low at 4.0% of gross sales in 1H20, and the delinquency rate reached 3.0% in 1H20. Sales in El Gouna in 1H20 increased 4.9% y/y to EGP1.2 billion, reflecting the 18.1% y/y increase in average selling price to EGP55,497/sqm and the 13.2% y/y decline in volume to 131 units. Sales improved significantly beyond 2Q20, with July 2020 contracted sales and reservations rising 94.2% y/y to EGP734.0 million.

  • Net debt slightly increased from EGP1.9 billion at the end of 1Q20 to EGP2.0 billion at the end of 2Q20.

Maintain Overweight

The improvement in sales performance in July 2020 coupled with the steady pickup in hotel performance, whereby the Eid holiday at the end of July 2020 witnessed a hotel occupancy rate in El Gouna of 82.0% of 887 open rooms (El Gouna has a total of 2,540 rooms), should pave the way to a better 2H20 compared to 1H20. We maintain our Overweight recommendation of ORHD based on our FV of EGP8.45/share which is mainly supported by the 20.0 million sqm residual land in El Gouna that we value at USD23/sqm. Our EGP8.45/share FV also conservatively assumes zero hotel revenue in FY20.