Amer Group (Amer) has reported its 3Q16 financial and operational results. Contracted sales was weak in 3Q16 (-41.0% Y-o-Y) and 9M16 (-34.8% Y-o-Y), which we attribute to depleting inventory, following the spin-off of most real estate operations to Porto Group. Reported revenue was healthy, driven by accelerated deliveries across Amer’s retained projects, but margins were weak, which we attribute to unfavourable delivery mix. Both the hotel and mall segment delivered better numbers, which we view positively, in light of the ongoing restructuring plans for the segments. Growth in net income was robust, at 78.4% Y-o-Y to EGP71.4mn in 3Q16 and 46.2% Y-o-Y to EGP145.7mn in 9M16. Amer’s balance sheet remained highly unleveraged, with the quarter closing with a net cash position of EGP301mn, despite the newly raised debt.   Main positives Robust growth in revenue, totaling EGP889.9mn (+32.8% Y-o-Y, +114.9% Q-o-Q) in 3Q16 and EGP1.38bn in 9M16 (+22.4% Y-o-Y). Revenue from real estate reached EGP645.5mn (+42.8% Y-o-Y, +124.0% Q-o-Q) in 3Q16 and EGP1.38bn in 9M16 (+29.0% Y-o-Y) on higher deliveries across Amer’s retained projects, namely: Porto Marina, Porto Sokhna, Golf Porto Marina, Gold Porto Sokhna, Porto Matrouh, Porto Sham, Porto South Beach and Porto Marina Residence Improved performance by the hotel segment, with revenue growing 14.9% Y-o-Y and 165.4% Q-o-Q to EGP145mn in 3Q16 and gross margin improving to 69% in 3Q16 (3Q15: 62%, 2Q16: 55%) and 63% in 9M16 (9M15: 61%) and operating profit improving to EGP10.4mn in 3Q16 (3Q15: EGP0.9mn) and EGP20.2mn in 9M16 (9M15: EGP9.7mn) Strong operating income from mall segment, with operating income coming in at EGP14.7mn (3Q15: EGP2.5mn in losses) and EGP7.9mn in 9M16 (9M15: EGP2.7mn). This is despite a 32% drop Y-o-Y in revenue in 3Q16 to EGP15.2mn and a 40% drop in 9M16 to EGP30.7mn Robust growth in net income, coming in at EGP71.4mn in 3Q16 (3Q15: EGP40.0mn, 2Q16: EGP6.0mn) and EGP145.7mn in 9M16 (+46.2% Y-o-Y) Decent drop in land liabilities to EGP207mn from EGP396mn in December 2015, on the back of repayment of a big portion of Porto Heliopolis land   Despite the rise in total debt to EGP300mn (+62% since December 2015), the company continued to hold a net cash balance of EGP301mn, available for investment and/or distribution                                                                                              Main negatives Lower contracted sales in 3Q16, coming in at EGP494mn (-41.0% Y-o-Y) and totaling EGP940mn in 9M16 (-34.8% Y-o-Y), on depleting inventory   Gross margin dropped 258bps Y-o-Y to 31.8% in 3Q16 and 481bps Y-o-Y in 9M16, which we mainly attribute to an unfavourable delivery mix at the company’s real estate division Weak performance by the restaurant segment, with operating income coming in at EGP4.5mn in 3Q16 (3Q15: EGP8.0mn) and EGP3.5mn in operating losses in 9M16 (9M15: 1.6mn in operating income). Management attributed the weak performance to significant rises in food costs and marketing expenses. The segments revenue grew 7.8% in 3Q16 to EGP84mn and 9.7% to EGP192mn in 9M16 (Company disclosure, Mai Attia, Sara Boutros)