      Revenues – USD113mn, +17% Y-o-Y, +25% Q-o-Q, +1.4% vs. EFGe
      EBITDA – USD38mn, +25% Y-o-Y, +41% Q-o-Q, -14.7% vs. EFGe
      Net income – USD25mn, +13% Y-o-Y, -42% Q-o-Q, -6% vs. EFGe
 
EK Holding released its financial highlights, showing earnings of USD25.4mn (-42% Q-o-Q, +13% Y-o-Y, -6% vs. EFGe), marginally missing our USD27mn estimate. It is another robust set of results from EK Holding, in our view, despite the miss, which was mainly driven by ONS’ earnings falling short of our numbers. That being said, based on our discussion with management, ONS’ production was deliberately slowed down as Parliament was in the process of ratifying its pricing arrangements (now already ratified). 
 
Operationally, EK’s revenues reached USD113mn seeing contribution from i) Alexfert (USD45mn); ii) Sprea (USD32mn); iii) Natenergy (USD18mn); iv) ONS (USD9mn); iv) the recently consolidated Delta Insurance (USD7.8mn); and v) other negligible items contributing to the balance. While revenues were in line with expectations, we highlight that we had not accounted for Delta insurance as a consolidated entity, which compensated for the miss on ONS’s top-line vs. our estimates. While revenues were in line, EBITDA missed our estimates by a wide margin of c15%, given the miss within ONS (which is a high EBITDA margin business). Adjusting for ONS’ numbers, the group’s EBITDA would have come in line with our expectations. Coming below the operational lines, the stronger cash balances (yielding high returns) allowed interest income to push the bottom-line closer to home at USD25mn vs. our estimate of USD27mn. 
 
Performance of main assets:
      Alexfert: The fertiliser division enjoyed a solid quarter, with urea operating rates at c94% (vs. 101% in 1Q of last year). The main driver behind the lower earnings Y-o-Y was: i) a 6% decline in implied urea prices; as well as ii) subsidised production, representing c28% of sales vs. 22% in 1Q17. Alexfert generated earnings of USD10mn during 1Q18 (-30% Y-o-Y, -23% Q-o-Q, +3% vs. EFGe).
 
      Sprea: The downstream formaldehyde derivative value chain never ceases to surprise positively. While marginally ahead of expectations on the top-line, bottom-line beat by 23% on: i) expanding operating margins derived from a more accretive product mix and pricing strategy; as well as ii) some interest income and other one-offs driving earnings ahead for the subsidiary. Sprea generated earnings of USD7.7mn during 1Q18 (-16% Y-o-Y, +30% Q-o-Q, +23% vs. EFGe).
 
      ONS: This subsidiary had the spotlight for this quarter and is still looked upon to present the next game-changing act for EK’s future. The asset is still ramping up and is bound to generate much higher earnings than what it achieved in 1Q18. ONS generated earnings of USD4.2mn (-50% vs EFGe). 
 
      Natenergy: This is another of EK’s flagship subsidiaries that showed a strong performance in 1Q18, which was backed by: i) a sizable customer additions to the natural gas grid (mostly seeming to be unsubsidised in nature); and ii) as the power plant ramps up at higher prices post a round of subsidy easing in power price that took place last year. Overall, Natenergy generated USD6.6mn in earnings (+78% Y-o-Y, +30% Q-o-Q, +12% vs. EFGe).   
 
Our take on the results: Overall, while ONS was relatively a disappointment in 1Q18, other core assets picked up the slack, and earnings came back to be broadly in line with expectations. EK Holding, to us, continues to be a fundamentally resilient and a well-diversified industrial conglomerate. While the stock has rallied considerably over the past 12-month period, we think its cash-rich balance sheet and attractive dividend yield offerings of c6% will provide a floor and downside protection for the share price. Not only that, but also there may still be more value to be unlocked in its growth prospect, such as: i) massive upside potential from future gas discoveries, which should be confirmed once the 3D seismic activities are concluded; and ii) some growth potential from its proposed MDF project. All things considered, while trading at a 2018 PE multiple of 11x, this would include heavy contribution from an asset that would be depleted over five years. So, excluding ONS from the multiple would imply EK is actually trading at a c14x multiple. We will be reviewing our numbers with the release of 1Q18’s set of results.  
 
Egyptian Kuwaiti: USD1.16 as of 16 May 2018, Rating: Buy, TP: USD1.00/share, MCap: USD1,188mn, EKHO EY/EKHO.CA
Ahmed Hazem Maher