• Weaker-than-expected contracted sales; SODIC was an exception Aggregate contracted sales for our peer group contracted 5% Y-o-Y and 22% Q-o-Q in 2Q16, missing our estimate by c15%. Apart from SODIC’s 20% and Porto Group’s 5% beats, contracted sales numbers for all companies under coverage came in shy of our estimates. Weak sales were commonly blamed on seasonality by managements, with Ramadan coinciding with the last three weeks of the quarter. Active new launches by SODIC was the main driver for the strength in sales, compared to its peers, which focused mostly on continuing to sell newly-launched projects. Also, SODIC’s numbers were boosted by the extension of its seven-year payment plan to more projects (vs. only one in 1Q16). Based on our discussion with managements, QTD trends are encouraging, with sales in the North Coast driving growth and showing decent growth rates Y-o-Y. 1H16 aggregate contracted sales figure was roughly unchanged Y-o-Y for our coverage universe.
• Strong revenue numbers, reflecting well on execution With the exception of the Egyptian Resorts Company (ERC) and Porto Group, all companies under coverage delivered strong Y-o-Y and Q-o-Q revenue growth, coming in with generous beats in excess of 20% for all. This is a product of strong historical sales numbers and steady, uninterrupted project execution, allowing for timely unit deliveries.
• Mixed results on profitability margin No common theme for profitability margin during the quarter, with various companies’ delivery mix emerging as a major determinant of margin direction. We note that managements dismissed concerns over the risks that the higher inflationary environment would have an impact on profitability margin, arguing that inflationary pressures were anticipated and taken into consideration in both project pricing and in agreements with contractors.
• Decent net income growth a theme, but not without exceptions ERC and Porto Group have both reported net losses for the quarter. ERC has reported the weakest set, in absence of both: new land sales and recognition from old sales, pressured further by land returns and weaker non-land revenue. Porto Group’s 2Q16 numbers were the second weakest, on squeezed margins and lower interest income, with a hike in minority interest charges eating up all of its profits. Strongest net income growth and estimate beats came from SODIC and Emaar Misr (on stronger-than-expected deliveries boosting revenue and filtering down to net income), along with Heliopolis Housing (likely on closure of a receivables factoring exercise during the quarter).

Mai Attia
Sara Boutros