• Recurring earnings up an impressive 47% Y-o-Y; beat our estimate Recurring earnings (excluding FX gains/ provisions) surged 47% Y-o-Y to EGP136mn with reported earnings up 38% Y-o-Y to EGP123mn due to revenue growth (+11%) and solid gross margin improvement of 7.6pp Y-o-Y. This was due to: i) a cut in CoGS on better product mix (it reduced production of low-margin products); and ii) base effect as 1Q15 margin was low due to the off-loading of high cost inventory. We will likely revisit our forecasts to reflect solid results and the recent government decision to raise medicines prices which should mitigate recent EPG devaluation impact. We reiterate our Buy rating given its sustained growth prospects and solid market position.
• Solid revenues growth on volume and prices; mainly domestic Revenue grew 11% Y-o-Y to EGP496mn (in line), mainly driven by 13% increase in local sales (+3% vs our est.) on higher volume and price, while exports were flat (-9% vs estimate). The positive impact of drug price increase in 2015 spilled-over in 2016 (products with higher prices contributed to 7% to EIPICO’s revenue in 2015), and earlier in 2016 the Egyptian government had allowed further increase of some medicines' prices. EIPICO should also benefit from stronger product additions in 2016, around 17 drug additions planned (vs seven in 2015), of which seven were delayed from 2015 (as the Ministry of Health applied more stringent tests on new products).
• Another price increase in 2016 approved as expected, but mitigated by higher margins for pharmacies and distributors The Cabinet of Ministers agreed to raise the retail prices of medicines selling for less than EGP30 by 20% in mid-May 2016 (with immediate effect), to mitigate the impact of EGP devaluation on production costs as most raw materials are imported. EIPICO’s management told us that the prices of around 50% of its drugs are under EGP30 (c100 products); hence, it will benefit from the decision. However, the increase in retail price will be shared by producers, distributors and pharmacies as the amendment of decree 499 included increasing pharmacies profit margin to 25%, up from 20%, and distributors’ profit margin to 9% up from 7%; hence, the effective ex-factory price increase for producers would be c10%.

Tarek El-Shawarby