Cleopatra Hospital Company (CHC) reported flattish (+3% Q-o-Q) recurring earnings (ex-one-off provisions, impairments and amortisation – mostly related to 2Q16) at EGP20.9mn. Please note that 3Q16 results are not comparable to 3Q15 as the latter consolidated Nile Badrawy (NBH - 99.92%-owned) and Cairo Specialized Hospital (CSH – 52.7%) in September 2015, while Al Shorouk hospital was acquired in late January 2016. Revenue grew 7% Q-o-Q to EGP215mn; the three main contributing segments to growth were outpatient clinics (+18% Q-o-Q), inpatients (+10%) and laboratory (+25%), while surgeries came in flattish (-3%) EBITDA remained flat Q-o-Q at EGP45mn. EBITDA margin fell to 20.7% from 22.2% in 2Q16; driven mainly by increased spending on maintenance, spare parts and energy costs associated with ongoing renovations of hospitals and capex installations, which management expects to have a positive impact on margins going forward. Consultant fees, medical staff cost and medical consumables cost grew in line with revenue, while SG&A expenses-to-revenue fell to a more normal level in the absence of higher overtime rates during Ramadan Below the EBIT line, provisions and receivable impairments were lower Q-o-Q and the company did not report material one-offs. Net finance costs fell sharply as expected mitigated by the received interest income of the IPO proceeds. It is worth noting that the IPO-related expenses (EGP30.8mn) were not booked in the income statement but rather netted from the IPO proceeds in 3Q16’s shareholders equity   In 9M16, revenue and EBIDA growth was solid at 17% Y-o-Y on a pro forma basis.   Developments and management outlook: Better management of insurance contracts and implementation of the one-stop-shop approach through new agreements with major insurers including MetLife, its largest insurance client, which are intended to direct and increase patient flow to all its hospitals. The rollout of this initiative will continue in 4Q2016 Sustained policy of passing on inflationary pressure given the defensive nature of the healthcare industry; management believes it will be able to pass on higher costs associated with EGP weakness and implementation of the VAT Inauguration of radiology centre at Cairo Specialized Hospital (CSH). CSH will also be home to a cardiac care centre of excellence, which will be supported in part by the EGP22mn world-class radiology centre Higher interest expense to be mitigated in the short term by locking in higher interest income on the  IPO proceeds; this is not sustainable as CHC begins deploying those proceeds   Our take on results: We do not have interim estimates for Cleopatra as interim pro forma historical financials were not available. Our estimates for the full year call for revenue of EGP856mn (16% growth on a pro forma basis), EBITDA margin of 25.9% and recurring earnings of EGP93mn. The company is largely on track to achieve our full year revenue estimate but so far 9M16 EBITDA margin at 22.8% is below our target, which puts a moderate risk to our full year earnings estimate. We expect CHC to eventually pass on inflationary pressure and benefit from the restructuring of hospitals, which should improve margins. However, we will likely see fluctuations in quarterly operating margins in the short term until this process complete. (Earnings release, Wafaa Baddour, Adham El Badrawy)   Cleopatra Hospital Company (CHC): EGP12.62 as of 20 November 2016, Rating: Buy, FV: EGP11.70 per share, MCap: USD117mn, CLHO EY / CLHO.CA