Egypt: Tourism hit/policy changes

Transcription

1 USDm Jan 5 Q1 2 Q3 2 Q1 3 Q3 3 Q1 4 Q3 4 Q1 5 Q3 5 Q1 6 Q3 6 Q1 7 Q3 7 Q1 8 Q3 8 Q1 9 Q3 9 Q1 1 Q3 1 Q1 11 Q3 11 Q1 12 Q3 12 Q1 13 Q3 13 Q1 14 Q3 14 Q1 15 Jul 5 Oct 3 Jan 6 May 4 Jul 6 Dec 4 Jan 7 Jul 5 Jul 7 Feb 6 Jan 8 Sep 6 Jul 8 Apr 7 Jan 9 Nov 7 Jul 9 Jun 8 Jan 1 Jan 9 Jul 1 Aug 9 Mar 1 Oct 1 May 11 Dec 11 Sep 13 Apr 14 Nov 14 Jun 15 S t r a t e g y U p d a t e N o v e m b e r Jaap Meijer, MBA, CFA jaap.meijer@arqaamcapital.com Michael Malkoun, CFA. michael.malkoun@arqaamcapital.com Egypt: Tourism hit/policy changes Tourism receipts set to fall by c.28. following the plane crash. Possible change in monetary policy faster depreciation of EGP, and interest rate cuts to be reversed. FX: Loan repayments coming up that should be more than offset by new loans from the World Bank. IMF loans remain an option. We are cautious in the short-term, but positive on the mediumterm macro outlook on Capex normalization, strong coprporate balance sheets, high output gap, institutional reforms and strong support from the region, though security and lower EGP will weigh on FDIs and capital inflows. We expect a c.28. decline in tourism receipts following news that European tour groups and airlines have suspended flights to Sharm El Sheikh, while not all companies have suspended flights to the resort destinations of Hurghada and Marsa Alam. We estimate that Russians and other nationalities that will stop flying to these resort destinations make up 6 of total foreigners, and that 3 of foreign tourists go to Cairo, while the rest go to the resorts. We, therefore, estimate a c.28. loss in tourism revenues (c.usd 2.1bn), bringing the 216 current account deficit to c.5. of GDP from 4. on a 6 month base view, while also shaving 216 real GDP growth by. (as also domestic tourism is affected). There continues to be a risk that tour operators might suspend flights to the other resort towns, while there is talk that European airlines might even suspend flights to Cairo, however, we believe that this is unlikely. Interest rate hikes and EGP devaluation? Two of the largest state owned banks in Egypt have introduced new savings products paying an interest rate of 12., up 25bps. We expect other banks to follow suit, and this could also be the beginning of a change in monetary policy, paving the way towards a rate hike in the next Central Bank meeting in December in an attempt to alleviate pressure on the Egyptian Pound, as we have seen in other African markets. The new governor (inaugurated by the end of the month) may change the monetary policy and we expect an accelerated depreciation of the EGP. To restore the historical exchange rate on a trade weighted basis, the EGP needs to depreciate to 8.35, but more may be needed as most EM and FM currencies also overcorrected. YtD, we have witnessed 3 steps, by January, 3% by July and 3% by October. Most affected are GB Auto, Halwani, Jufo, SWDY and Ezz. FX should be more challenging than expected on lower tourism and repayments of USD 2.4bn before July 216. This includes the two installments of USD 7m each due to the Paris Club in January and July, in addition to the last remaining USD 1bn treasury bonds owed to Qatar that are due to mature in July 216 as well. In an attempt to offset these outflows and to bolster government spending, Egypt should receive a USD 1.5bn loan from the World Bank and the African Development Bank under a facility called the Development Policy Loan which is granted against past reforms being implemented. In addition, Egypt is in the process of negotiating a separate USD 3bn loan from the World Bank to be granted over a period of three years. Finally, the government is hoping to earn USD 2.5bn from the sale of land to Egyptians living abroad. There are no negotiations at the moment with IMF, but it stands ready to provide support. Egypt key charts EGPUSD: Only 1 depreciation over past year Source: Thomson Reuters Datastream Egypt international reserves 4, 35, 3, 25, 2, 15, 1, Source: Thomson Reuters Datastream Egypt FDI as % of GDP Source: Thomson Reuters Datastream Copyright 215, Arqaam Capital Limited. All Rights Reserved. See Important Notice.

2 November Exhibit 1: Impact of Russian plane crash on tourism numbers (USDm) Total tourism 7,37 % Cairo 3 % Sharm 3 % Hugrada and Marsa Alam 4 % Russian & others who will not travel to Egypt resorts anymore 6 Affect multiple (situation persists for 6 months) % Cairo % Sharm 5 % Hugrada and Marsa Allam 3 Loss in tourism receipts Cairo 111 Sharm 1,16 Hurgrada 884 Total loss 2,11 New tourism receipts 5,27 % fall (28.) Expected current account (14,574) CA as % of GDP (4.) New CA (16,675) New CA as % of GDP (5.) Expected GDP 326,853 Tourism as % of GDP 3.3% Tourism in absolute magnitude 1,845 New tourism in absolute magnitude 7,754 New GDP 323, GDP 287,729 Old GDP growth 13. New GDP growth 12. Source: Central Bank, IMF, News Sources, Arqaam Capital Research Copyright 215, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 2

3 EGPbn November Exhibit 2: Egypt Economic Summary e 216e 217e 218e 219e 22e Real GDP 5.1% % % % Nominal GDP growth % % % Total investment as % of GDP % % Gross national savings as % of GDP % % 11. Inflation, average consumer prices 11.7% 11.1% 8.7% % % Unemployment rate % Government Revenue (EGPbn) ,4.1 1,134.4 Government Expenditure (EGPbn) ,12.5 1, ,271. 1,426. Fiscal balance as % of GDP (8.3%) (9.) (1.) (14.1%) (13.) (11.7%) (9.) (7.) (7.) (6.) (6.7%) Gross Debt/GDP % % 79.3% 77. Current account balance as % of GDP (2.) (2.) (3.) (2.) (.) (3.7%) (4.) (4.) (4.) (4.) (4.) Source: IMF Exhibit 3: Egypt GDP vs. M2 growth Exhibit 4: EGX3 vs. GDP growth 23% 1, 23% 21% 9, 21% 1 17% 1 13% 11% 8, 7, 6, 5, 4, 3, 2, 1 17% 1 13% 11% 7% 1, 7% GDP M EGX3 GDP (RHS) Exhibit 5: Real GDP growth Exhibit 6: Real GDP output gap % 8 3% % 45 Real GDP (with trend) Current real GDP forecasts Copyright 215, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 3

4 FY 8 FY 83 FY 86 FY 89 FY 92 FY 95 FY 98 FY 1 FY 4 FY 7 FY 1 FY 13 FY 16 FY 19 Oct 3 May 4 Dec 4 Jul 5 Feb 6 Sep 6 Apr 7 Nov 7 Jun 8 Jan 9 Aug 9 Mar 1 Oct 1 May 11 Dec 11 Sep 13 Apr 14 Nov 14 Jun 15 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 USDm Jan 5 Jul 5 Jan 6 Jul 6 Jan 7 Jul 7 Jan 8 Jul 8 Jan 9 Jul 9 Jan 1 Jul 1 UAE KSA China Italy Germany UK India France Kuwait Switzerland Turkey November Exhibit 7: Volume of trade by partners as % of total s Exhibit 8: EGPUSD: only 1 depreciation over past year, our target % % 1% Exhibit 9: 4, International reserves still too low for comfort, but GCC is wiring FX reserves Exhibit 1: Egypt loan and deposit growth (y/y), loan growth catching up with deposits, ending crowding out 2 35, 2 3, 1 25, 1 2, 15, 1, Total loan growth y/y Total deposit growth Exhibit 11: Investments as % of GDP: Ready for takeoff, CAPEX has to increase to 2 to sustain the recovery Exhibit 12: Corporate leverage: ample scope for leverage corporate B/S x 25x 15x 5x -5x -2-15x -3 Morocco Mauritius South Africa Kenya Egypt Nigeria -25x IMF Arqaam Capital Research Net debt/mkt cap Net debt/assets Interest coverage (RHS) Source: IMF, Arqaam Capital Research Copyright 215, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 4

5 EGPbn EGPbn USDm EGPbn November Exhibit 13: Net debt/gdp: expected to fall as fiscal deficit falls below 1 Exhibit 14: Population evolution of pa GDP growth of + is needed to materially affect welfare population Source: IMF, Arqaam Capital Research Source: IMF, Arqaam Capital Research Exhibit 15: Overall balance of payments 6, 4, 2, Exhibit 16: Fiscal balance in absolute terms , 1-4, -1-6, Q4 8A Q4 9A Q4 1A Q4 11A Q4 12A Q4 13A Q3 14A Overall balance Potfolio investments FDI -3 FY 8A FY 9A FY 1A FY 11A FY 12A FY 13A FY 14e FY 15e Total revenues Total expenditures Overall Fiscal Balance Source: IMF, Arqaam Capital Research Exhibit 17: Breakdown of government revenues Exhibit 18: Breakdown of government expenditures FY 8A FY 9A FY 1A FY 11A FY 12A FY 13A FY 14e FY 15e Tax Revenues Grants Property Income Sales of goods & services Other FY 8A FY 9A FY 1A FY 11A FY 12A FY 13A FY 14e FY 15e Employees compensations Purchases of goods & services Interests Subsidies, grants & social benefits Purchases of non-financial assets Other Source: IMF, Arqaam Capital Research Copyright 215, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 5

6 Oct 1 Apr 11 Oct 11 Apr 12 Oct 12 Apr 13 Oct 13 Apr 14 Apr 15 Jun 5 Dec 5 Jun 6 Dec 6 Jun 7 Dec 7 Jun 8 Dec 8 Jun 9 Dec 9 Jun 1 Dec 1 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Dec Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 November Exhibit 19: Real estate prices real estate provides an inflation hedge s Exhibit 2: Egypt overnight deposit facility rate we expect a further 5bps cut before year end 1,5 13% 1,45 1 1,4 11% 1,35 1 1,3 1,25 1,2 1,15 1,1 1,5 1, 7% Discount Rate CPI Source: Global Property Guide, Arqaam Capital Research Exhibit 21: Egypt 3 month treasury yield historically Exhibit 22: Egypt 3 month treasury yield last five years % 1 11% 1 Exhibit 23: 3M vs. 1Y sovereign debt yield s Exhibit 24: CPI vs. policy rate negative real interest rates to fuel private sector debt % % % M 1Y CPI Policy Rate Copyright 215, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 6

7 Feb 3 Aug 3 Feb 4 Aug 4 Feb 5 Aug 5 Feb 6 Aug 6 Feb 7 Aug 7 Feb 8 Aug 8 Feb 9 Aug 9 Feb 1 Aug 1 Feb 11 Aug 11 Feb 12 Aug 12 Aug 13 Feb 14 Aug 14 Feb 15 Feb 4 Aug 4 Feb 5 Aug 5 Feb 6 Aug 6 Feb 7 Aug 7 Feb 8 Aug 8 Feb 9 Aug 9 Feb 1 Aug 1 Feb 11 Aug 11 Feb 12 Aug 12 Aug 13 Feb 14 Aug 14 Feb 15 Oct 5 Mar 6 Aug 6 Jan 7 Jun 7 Nov 7 Apr 8 Sep 8 Feb 9 Jul 9 Dec 9 May 1 Oct 1 Mar 11 Aug 11 Jun 12 Nov 12 Apr 13 Sep 13 Feb 14 Dec 14 May m Oct 8 Feb 9 Jun 9 Oct 9 Feb 1 Jun 1 Oct 1 Feb 11 Jun 11 Oct 11 Feb 12 Jun 12 Oct 12 Jun 13 Oct 13 Feb 14 Jun 14 Feb 15 Jun 15 Oct 1 Apr 11 Oct 11 Apr 12 Oct 12 Apr 13 Oct 13 Apr 14 Apr 15 November Exhibit 25: CPI vs. PPI historically-suggest lower corporate margins 2 2 Exhibit 26: Egypt industrial production growth (y/y) sharp fall due to FX and fuel restrictions PPI CPI Core CPI Exhibit 27: Household credit evolution accelerating growth Exhibit 28: Air passengers Passengers Y/Y (RHS) Exhibit 29: Unemployment rate substantial room for growth with large idle capacity 1 13% 1 Exhibit 3: Labor force vs. employment evolution employment now outpacing labor force growth 11% Labor force y/y Employment (y/y) Copyright 215, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 7

8 USDbn USDbn USDm November Exhibit 31: Egypt FDI 2, Exhibit 32: Egypt net FDI as % of GDP 1 15, 1 1, 5, -5, -1, Inflows Outflows Net Exhibit 33: Value of exports vs. imports - deficit Exhibit 34: Egypt real GDP breakdown % 2 1 Exports Imports 3% Agriculture, Foresty & Fishing Extractions Manufacturing Industries Water & Electricity Construction & Building Transportation & Storage Suez Canal Finance & Insurance Tourism 1 Exhibit 35: Egypt FDI by country Exhibit 36: Egypt FDI not only Arab countries % 11.3% %.5 Q4 8A Q4 9A Q4 1A Q4 11A Q4 12A Q4 13A Q4 14A USA EU Arab countries Other countries USA EU Arab countries Other countries Copyright 215, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 8

9 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 m Manufacturing Industries Finance & Insurance Agriculture, Foresty & Fishing Construction & Building General Government Tourism Real Estate Transportation & Storage Suez Canal Water & Electricity Others Extractions Q4 11A Q1 12A Q2 12A Q3 12A Q4 12A Q1 13A Q2 13A Q3 13A Q4 13A Q1 14A Q2 14A Q3 14A Q4 14A EGPm November Exhibit 37: Egypt nominal GDP growth vs. rest of Africa Exhibit 38: Egypt real GDP evolution , 35, 3, 25, 2, 15, 1, 5, 3% 1% -1% - -3% - - Egypt Source: IMF, Arqaam Capital Research ROA Agriculture, Foresty & Fishing Extractions Manufacturing Industries Water & Electricity Construction & Building Transportation & Storage Suez Canal Finance & Insurance Tourism Real Estate General Government Others Exhibit 39: Egypt real GDP y/y growth by sector tourism picking up again with finance & insurance spiking Exhibit 4: Egypt contribution to real GDP growth Q4 13A Q1 14A Q2 14A Q3 14A Q4 14A Agriculture, Foresty & Fishing Extractions Manufacturing Industries Water & Electricity Construction & Building Transportation & Storage Suez Canal Finance & Insurance Tourism Real Estate Exhibit 41: Number of tourist arrivals recovery from t 14, Exhibit 42: Number of tourist arrivals growth 2 12, 15 1, 1 8, 6, 4, 5-5 2, 28/29 29/21 21/ / / / /215-1 Copyright 215, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 9

10 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 m November Exhibit 43: Number of tourist nights Exhibit 44: Number of tourist nights growth 16, 8 14, 12, , 4 8, 6, , 2, /29 29/21 21/ / / / /215 Exhibit 45: Suez Canal total vessels 25, Exhibit 46: Suez Canal total cargo tons 9, 8, 2, 15, 1, 5, 7, 6, 5, 4, 3, 2, 1, Source: Suez Canal Authority, Arqaam Capital Research Source: Suez Canal Authority, Arqaam Capital Research Exhibit 47: Suez Canal total tolls (USDm) 6, 5, 4, 3, 2, 1, Exhibit 48: Tolls as % of GDP Source: Suez Canal Authority, Arqaam Capital Research Source: IMF, Suez Canal Authority, Arqaam Capital Research Copyright 215, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 1

11 Jun 6 Nov 6 Apr 7 Sep 7 Feb 8 Jul 8 Dec 8 May 9 Oct 9 Mar 1 Aug 1 Jun 11 Nov 11 Apr 12 Sep 12 Dec 13 May 14 Mar 15 Aug 15 Jan 6 Jul 6 Jan 7 Jul 7 Jan 8 Jul 8 Jan 9 Jul 9 Jan 1 Jul 1 Jan 6 Jul 6 Jan 7 Jul 7 Jan 8 Jul 8 Jan 9 Jul 9 Jan 1 Jul 1 Jan 6 Jul 6 Jan 7 Jul 7 Jan 8 Jul 8 Jan 9 Jul 9 Jan 1 Jul 1 November Exhibit 49: Coverage TP sensitivity to EGP devaluation cautious on GB auto Exhibit 5: Coverage FY 15e EPS sensitivity to EGP devaluation s EGTS ETEL Almarai Mobinil Savola EZZ SWDY JUFO Halwani GB Auto -18 EGTS Almarai Savola Halwani ETEL JUFO EZZ GB Auto SWDY Mobinil Source: Company Data, Arqaam Capital Research Source: Company Data, Arqaam Capital Research Exhibit 51: EGX3: Forward P/E ratio revaluation Exhibit 52: EGX3: P/B ratio deep value 2x 1x 18x 16x 14x 9x 8x 7x 6x 12x 5x 1x 8x 6x 4x 3x 2x 1x 4x x Forward P/E P/B Exhibit 53: EGX3: Net margin: recovery from transitional years despite challenges for some businesses Exhibit 54: EGX3: Dividend yield Egypt is growth not a yield story Net Margin Div. yield Copyright 215, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 11

12 Jun 6 Nov 6 Apr 7 Sep 7 Feb 8 Jul 8 Dec 8 May 9 Oct 9 Mar 1 Aug 1 Jun 11 Nov 11 Apr 12 Sep 12 Dec 13 May 14 Mar 15 Aug 15 Jun 6 Nov 6 Apr 7 Sep 7 Feb 8 Jul 8 Dec 8 May 9 Oct 9 Mar 1 Aug 1 Jun 11 Nov 11 Apr 12 Sep 12 Dec 13 May 14 Mar 15 Aug 15 Jun 9 Oct 9 Feb 1 Jun 1 Oct 1 Feb 11 Jun 11 Oct 11 Feb 12 Jun 12 Oct 12 Jun 13 Oct 13 Feb 14 Jun 14 Feb 15 Jun 15 Mar 9 Jul 9 Nov 9 Mar 1 Jul 1 Nov 1 Mar 11 Nov 11 Mar 12 Nov 12 Mar 13 Nov 13 Mar 14 Nov 14 Mar 15 Nov 15 Sep 9 Mar 1 Sep 1 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Sep 13 Mar 14 Sep 14 Mar 15 Sep 15 Mar 9 Sep 9 Mar 1 Sep 1 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Sep 13 Mar 14 Sep 14 Mar 15 Sep 15 November Exhibit 55: EGX7: Forward P/E ratio deep value Exhibit 56: EGX7: P/B ratio deep value (2) 16x 3.5x 15x 14x 3.x 13x 12x 2.5x 11x 2.x 1x 9x 1.5x 8x 7x 1.x 6x.5x Forward P/E P/B Exhibit 57: EGX7: Net margin improving Exhibit 58: EGX7: Dividend yield 1 1 Net Margin Div. yield Exhibit 59: EGX3: Trailing EPS showing recovery Exhibit 6: EGX3: Consensus EPS ample scope for growth LTM EPS BEST EPS Copyright 215, Arqaam Capital Limited. All Rights Reserved. See Important Notice. 12

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