• ERC posts better results in 3Q16 on land revenue recognition     Egyptian Resorts Company (ERC) 3Q16 revenue came in at EGP49.5mn (3Q15: EGP16.7mn, 2Q16: EGP5.9mn), of which EGP29.1mn was from the recognition of revenue from previous land sales. Revenue from services was EGP16.7mn (+11% Y-o-Y, +61% Q-o-Q). Gross profit was EGP13.0mn (3Q15: EGP11.7mn and 2Q16: EGP17.9mn, both in the red). Net income was EGP7.9mn (3Q15: EGP12.0mn, 2Q16: EGP35.1mn, both in the red). 9M16 revenue totalled EGP65.8mn (-79% Y-o-Y); gross loss: EGP15.1mn (9M15: EGP197.3mn in gross profit) and net loss: EGP21.9mn (9M15: EGP165mn in net income).
• Adjust 3Q16 estimates; raise FV following EGP floatation We raise our assumptions for 2016 to account for higher-than-expected land and services revenue in 3Q16 and for an expected cEGP10.5mn FX gain in 4Q16 (c14% of its cash balance is in FCY). We expect it to return to profitability in 2019 on a boost from revenue from higher new land sales and better recognition. We raise our FV by 37% to EGP1.12 to reflect a USD/EGP exchange rate of EGP13.09 (vs. the original rate of EGP8.88), in line with our economist’s estimate for 2017. We note that ERC’s contracts are USD-based, with amounts payable in EGP, at an official exchange rate. We maintain our Neutral rating with our FV implying c14% upside.
• Slightly better outlook for 2017 We expect minimal land sales to be completed in 2017 (nil in 2016), with a slight improvement seen near year-end, to reflect the prevailing weakness in the tourism sector in Egypt. Receivable collection is expected to improve through the year resulting in c39% revenue expansion, up from a weak 2016. Non-land revenue will grow modestly over the year, weighed-down by low destination occupancy. Faster-than-expected improvement in sentiment around the tourism sector in Egypt, the launch of Sawari and most importantly, the return of phase III land would make us more positive.

Sara Boutros
Mai Attia