• Seasonality affects revenue growth; EBITDA margin lower on salaries Recurring earnings were flat Q-o-Q at EGP20mn; excluding a one-off provision, receivable impairment and amortisation. Revenue softened 4% Q-o-Q due to seasonality (lower activity in Ramadan) and the EBITDA margin contracted 3.4pp to 22.2% on higher wages and salaries (new hires as part of the restructuring plan and overtime in Ramadan). Recurring earnings were supported by lower taxes that fluctuate quarterly on non-tax deductible items and deferred tax. Results are not comparable to 2Q15 that only included the Cleopatra hospital. We do not have interim estimates as historical pro forma quarterly financials are not available.
• Large one-off provision, receivable impairments; IPO fees not booked CHC reported EGP12mn in one-offs in 2Q16: i) EGP6.4mn provision related to a redundancy plan that will result in cost savings in the short-to-medium term; and ii) EGP6mn receivables impairment related to old receivables. It has not booked fees related to the IPO yet and will likely book it in 3Q16.
• 2016 recurring estimates achievable; margin and one-off are key risks We believe our recurring estimates for 2016 are largely achievable; revenue of EGP856mn (EGP411mn in 1H16), with improved revenue and margin in 2H16, and recurring earnings of EGP93mn (41mn in 1H16). We assume the IPO proceeds will be used to reduce finance costs, until they are utilised for acquisitions or expansions. Key risks include: i) low EBITDA margin in 2H16 on inflationary pressure; and ii) further non-recurring provisions and impairments of receivables, despite booking EGP27mn one-offs in 2015.
• Acquisitions and expansions are key catalysts; reiterate Buy We reiterate our Buy rating on: i) 2017e P/E is 16x vs. 22x for peers; ii) large potential to unlock value through synergies, helped by the restructuring plan; and iii) use of IPO proceeds in value-accretive investments is a key upside. CHC expects EGP85mn of its EGP124mn restructuring capex to be spent in 2016 (mostly in 2H16, not financed with IPO proceeds), indicating a few months delay in completing the restructuring plan. It also announced its intention to acquire the remaining shares of CSH (currently 52.7%-owned).

Wafaa Baddour, CFA
Tarek El-Shawarby
Ahmed Hazem Maher
Adham El Badrawy