-        Revenue – EGP392mn, +16% Y-o-Y, -6% Q-o-Q, +1% vs. EFGe
-        EBITDA margin – 12.5%, +3.2pp Y-o-Y, -8.1pp Q-o-Q, +2.2pp vs. EFGe
-        Net profit – EGP1,216mn, vs. 3Q17 net loss of EGP128mn, vs. 2Q18 net loss of EGP39mn, vs. EFGe net loss of EGP23mn

OIH reported its 3Q18 numbers, showing a surprising net profit of EGP1,216mn, which beat our estimate of a net loss of EGP23mn, mainly due to booking profits from discontinued operations of EGP1,250mn; this pertains to MENA SCS, the asset the company had sold to TE earlier this year for USD90mn, and reflects the gain on sale of the asset, we believe. We were expecting this gain to take place in 4Q18 rather than 3Q18. Excluding this gain, OIH would have booked net loss of EGP34mn, missing our estimate of net loss of EGP23mn; this is despite EBITDA coming in at EGP49mn vs. our estimate of EGP40mn. On the revenue line, the company achieved a total revenue of EGP392mn (+16% Y-o-Y, -6% Q-o-Q), in line with our estimate; we saw no major surprises at the subsidiaries’ revenue breakdown. The EBITDA breakdown, however, was a mixed bag, as we saw solid performance from management fees, marine cables and investment property, but this was largely offset by negative EBITDA in financial services and others.

Barring what appears to be the gain from the sale of MENA SCS to TE, completed in Sep 2018, the company’s operating performance is still relatively weak, in our view. Assuming there will be no one-off items/gains next quarter, we are expecting OIH’s 4Q18 to return to net losses as the remaining business lines do not generate sufficient profits, while the company is likely to continue to fully impair income from Koryolink because of its inability to repatriate profits from North Korea. Moreover, we maintain a negative view on the company’s strategy and its execution, and we do not expect to see any significant improvement in 2019 as the portfolio of assets is likely to remain largely unchanged. OIH lately said it would look into acquiring Nile Sugar in 4Q18 and has also made an offer for the shares of publicly listed NBFS player Sarwa Capital. At the moment, we do not see any catalysts for the stock, but we note that M&A news flow could result in speculation that would lead to positive movements in the share price.

Omar Maher

Orascom Investment Holding SAE: EGP0.58 as of 15 Nov. 2018, Rating: Sell, TP: EGP0.53/share, MCap: USD171mn, OIH EY/OIH.CA