• Buy rating but low upside vs. YTD rally; turnkey awards a catalyst We adjust our FV to EGP92 to reflect the EGP free float and better margins in 9M16. We raise our clean earnings estimates by c45% on average. Over 45% of revenue comes from outside Egypt and a large portion of local revenue is priced in FC. With a turnkey projects backlog of USD2.3bn and stronger demand for cables and electrical products, we forecast recurring earnings in excess of EGP2.6bn over 2016-18e and attractive dividend yield. We reiterate our Buy rating, but upside (20%) is narrow vs. its 110% YTD rally in share price. Catalysts for a rerating are: i) execution of Angola project (c21% of turnkey backlog) that we exclude for now; ii) rebuilding of turnkey backlog to secure revenue post-2018; we assume conservative additions.
• Never looked better operationally Volume and profitability grew across all segments in 2016, driven by expansion of power capacity in Egypt, strong growth in Algeria, the GCC and exports, as well as a favourable product mix (partly exceptional) and currency movement. In addition to EGP weakness’ favourable impact on 2017 numbers, we expect: i) robust turnkey deliveries from Beni Suef, the rest of Egypt fast track, transmission, and distribution projects in Egypt and the GCC, as well as lower, normal GPM; ii) +5% in cables volume, assuming sales in Egypt and export markets will offset a likely slower business in some GCC markets (from a high base), and peaking profitability; and iii) +10% in electrical products volume with a normal GPM.
• Opportunities & risks: Slower turnkey backlog additions incorporated The turnkey segment may surprise positively on new projects and margin. However, we adopt a conservative view; exclude Angola due to delays and expect project awards to slow down in Egypt amid increased competition. Main concerns are: i) a sharper than estimated softening in turnkey post-delivery of large projects; ii) a sharp cut in cable profitability after peaking in 2016-17; iii) delays in receivables collection. We represent in this note our initial assessment for the favourable currency impact on operations; this may change after it publishes its full-year results and 2017 guidance.

Wafaa Baddour, CFA