-        Revenue – EGP916mn, +57% Y-o-Y, +73% Q-o-Q, +23% vs. EFGe

-        Gross profit – EGP379mn, +54% Y-o-Y, +110% Q-o-Q  

-        Net profit – EGP173mn, +100% Y-o-Y, +60% Q-o-Q, +34% vs. EFGe

-        Net contracted sales – EGP2.4bn, +63% Y-o-Y, +70% Q-o-Q, +49% vs. EFGe

SODIC reported its financial and operational results for 4Q16. Net contracted sales were strong, despite having a single launch during the quarter. Following the free-floatation of the EGP in November 2016, the company took the decision to pass on a 20-30% price increase on existing inventory and to stop new project launches until the beginning of 2017. Other operational metrics, including cash collections, cancellation and delinquency rates were also healthy. Reported revenue was strong, on active delivery exceeding the 1,000 mark (c41% of which at Eastown). Gross margin has recovered sequentially, which we attribute to the conclusion of the delivery of the first batches at Eastown, which carried low margins. EBIT margin came under pressure, with a rise in G&A expenses. SODIC is targeting EGP5.6bn in contracted sales in 2017 (unchanged Y-o-Y, EGP5.0bn in our numbers). Two new launches were concluded YTD (One16 and October Plaza, both in the West), for which management indicated demand was strong. Two other projects are set to be launched during the year, namely: the co-development project with Heliopolis Housing and Aurea (last residential project in SODIC West).

SODIC continues to be one of our top picks in the sector, with our TP implying 54%.  

Main positives  

-        Strong net contracted sales, totalling EGP2.4bn (+63.0% Y-o-Y, +69.6% Q-o-Q, EFGe: +49%). One new launch took place during the quarter (Eastown Parks), before the company decided to postpone all new launches for 2017, pending more clarity on market dynamics, following the EGP float. The quarter’s contracted sales figure indicates that the uptake for the existing inventory was strong, despite the decision to increase prices 20% on core and shell and 30% on finished units. 2016 sales totalled EGP5.6bn (+28% Y-o-Y), of which c60% were from sales at East Cairo, 28% from SODIC West and 12% from Caesar

-        Cash collections hit a new record (EGP995mn in 4Q16, +40.3% Y-o-Y, +27.9% Y-o-Y), bringing 2016 total to EGP3.1bn (+30.8%). Delinquencies were low, at 2% in 2016

-        Cancellation rate was down to 2%, from 4% in 3Q16 and 3% in 4Q15. 2016 cancellations were 4% (2015: 5%)

-        Strong reported revenue on stronger-than-expected deliveries; number of units delivered in 4Q16: 474, 3Q16: 286, 4Q15: 297, bringing 2016 total to 1,060 units (2015: 722 units, 2016 target: 935), of which 41% were in Eastown. Revenue came in at EGP915.5mn (+57.2% Y-o-Y, +72.9% Q-o-Q, EFGe: +22.8%) and EGP2,067bn in 2016 (+40.4% Y-o-Y)

-        Strong gross profit margins (4Q16: 41.4%, 4Q15: 42.4%, 3Q16: 34.1%), with lower pressure coming from the early launches at Eastown, which pressured margins since May

-        Net income beats estimate on stronger-than-expected revenue. Net income came in at EGP173.1mn (+100% Y-o-Y,  +60.2% Q-o-Q, EFGe: +34%) and EGP429mn in 2016 (+38.2% Y-o-Y)

-        Quarter closed with EGP1.4bn in net cash (September 2016: EGP1.0bn), a reflection of healthy cash collection    

Main negative

-        Weaker EBIT margin, on a surge in G&A expenses, which totalled EGP144.5mn (+72.7% Y-o-Y, +2.6x Q-o-Q) in 4Q16 and EGP262mn in 2016 (+38.9% Y-o-Y) 

SODIC: EGP12.07 as of 28 Feb. 2017, Rating: Buy, TP: EGP18.90/share, MCap: USD259mn, OCDI EY/OCDI.CA