Equity Analysis /
Egypt

SODIC: Sales hit by limited launches

    • Sales in 1Q19 declined 29.7% y/y and 37.5% q/q to EGP881.0 million due to limited project launches during the quarter. The quarter witnessed the launch of the first phase of Allegria Residence and the second phase of Eastown District New Cairo (EDNC), the company’s office complex in East Cairo.
    • Cancellation rate in 1Q19 jumped to 12.0% of gross contracted sales, compared to 4.3% in 1Q18 and 5.6% in 4Q18. The rise in the 1Q19 cancellation rate resulted from large cancellations in January 2019, with the rate coming back down to less than 4.0% in March and April 2019.
    • The annual rise in unit deliveries resulted in the 83.7% y/y increase in 1Q19 revenue.
    • Margins declined y/y given that 1Q18 had witnessed the high-margin sale of a land plot and that 1Q19 witnessed the delivery of the low-margin early phases of Villette which constituted around half of the quarter’s delivery mix.
    • Net cash and receivables remained stable at EGP2.5 billion and EGP11.4 billion, respectively.

    Re-shifting from east to west

    SODIC (OCDI) is targeting FY19 sales of EGP7.2 billion which would imply a 39.2% y/y increase. Our FY19 sales projection of EGP4.3 billion taken into account in our EGP32.36/share valuation does not include sales from Al Yosr and the 500-feddan West Cairo project given our valuation of these two projects on a NAV basis. Given OCDI’s 1Q19 sales, its FY19 sales target seems unlikely, unless the planned launch of Al Yosr and the 4Q19 launch of the 500-feddan West Cairo project push sales towards the company’s ambitious target. 

    Maintain Overweight

    We maintain our Overweight recommendation of OCDI based on our FV of EGP32.36/share.