        Recurring net income: EGP109.8mn, -41% Y-o-Y, -48% Q-o-Q, -46% vs. EFGe
        Revenue: EGP682.1mn, +3% Y-o-Y, -4% Q-o-Q, -8% vs. EFGe
        EBITDA: EGP167.2mn, -38% Y-o-Y, -34% Q-o-Q, -43% vs. EFGe
 
Egyptian International Pharmaceutical Industries Co. (EIPICO) reported a 3Q18 headline earnings decline of 43% Y-o-Y to EGP103mn. Recurring earnings (excluding provisions and FX gains) were also down by a similar 41% Y-o-Y (-48% Q-o-Q) and missed our estimate by 46% on great-than-expected margin pressures and a lacklustre top-line. In 9M18, recurring earnings decreased 15% Y-o-Y to cEGP521mn. Revenue inched up +3% Y-o-Y (-8% vs. EFGe), slowing from the double-digit growth range maintained over the past 10 quarters. Local revenue (77% of 3Q18 revenue; includes ampoules) grew 8% Y-o-Y, mostly on volume recovery. We also believe there was little impact of price increases (in Jan 2017: +50% for select drugs below EGP50, +40% for EGP50-100, +30% for more than EGP100; came into effect in 2Q17 because of inventory in the market). Meanwhile, exports declined 11% Y-o-Y, likely as two of the company’s main markets remained weak – Saudi Arabia (due to economic headwinds and competition) and Russia (due to issues with distribution via Turkey). Margins continued to trend downwards, with gross margin contracting c13.7pp to 37.6% on raw material cost pressures (+45% Y-o-Y). Accordingly, gross profit declined 25% Y-o-Y to (-25% vs. EFGe). EBITDA margin saw a steeper decline (-15.8pp to 24.5% vs. EFGe of 39.9%) as SG&A costs were up 18% (ahead of revenue growth), likely as the company looked to recoup market share via increased marketing and distribution efforts.
 
We are disappointed by the results set, particularly on the margin front, as we had expected the decline in earnings to start decelerating (1H17 was a high base due to cheap inventory) and to be offset by stronger market share/volume growth. We will revisit our numbers to reflect the result set. 

Nada Amin, Hatem Alaa
 
EIPICO: EGP107.00 as of 15 Nov. 2018, Rating: Buy, TP: EGP165.00/share, MCap: USD472mn, PHAR EY/PHAR.CA