Elsewedy Electric [SWDY.CA] reported 3Q16 net profit of EGP720mn, vs. profit of EGP873mn in 2Q16 (that was boosted by an exceptionally high turnkey projects’ margin) and EGP285mn in 3Q15. This comes slightly below our net profit forecast of EGP778mn for the quarter on lower-than-expected revenue, while margins were sustained at relatively high level. Revenue fell 17% Q-o-Q to EGP4.87bn (-16% vs. estimate), driven largely by lower: i) cables volume Q-o-Q in some markets, including Saudi Arabia (partly on seasonality due to long holidays during the pilgrimage season), while demand in the Egyptian market continued to recover well; and ii) turnkey revenue due to slower execution of the final stages of the fast track project (now expected to complete by early 2017 instead of end-2016 previously), while deliveries from Beni Suef  project were on track.   Gross profit fell 19% to EGP1.25bn (costs exclude depreciation) and missed our estimate by 6%. GPM slightly softened Q-o-Q, as turnkey margin was exceptionally high in 2Q16, but it remained at a high level of 25.6%. Profitability remained solid across the board: i) cable GP/tonne remained at peak level due to increased sales of high voltage cables, and likely on market nix and a positive impact from the EGP devaluation (cables have been priced in Egypt at the parallel FX rate); ii) turnkey projects margin was broadly solid at 21% (still within the expected ST range of 20%-25%)- it has been fluctuating quarterly depending on projects’ contribution and settlements (positive) related to fast track project; and iii) electrical products performance and margins were robust, particularly at the transformers segment that saw exceptional intercompany sales for a turnkey project that boosted transformers margin.     Adjusted EBITDA (including share of profit from equity accounted investees) also fell 24% Q-o-Q to EGP1.03bn, with SG&A expenses coming in flattish. The margin remained at a high level of 21.2% (c1pp lower Q-o-Q, moderately above our estimate).   Below EBIT: Most expenses, including income tax, softened Q-o-Q. The company has not booked significant one-off items during the quarter.   Our take: Overall, another solid quarter with sustained solid profitability. 4Q16 and 2017 will benefit from the EGP weakness’ positive impact, particularly as turnkey projects are priced largely in FC (80% of the backlog), and a large part of cables and electrical products revenue is in FC . Moreover, the balance sheet remains solid, as FC receivables should cover FC payables and debt, according to management. Two main points to watch for: i) cable volume sales to markets that are affected by the low oil price environment (Saudi Arabia in particular); and ii) there is a delay in Angola project as the company is in the process of obtaining financial guarantees before starting construction (other authorities’ approvals were obtained), given the large size of the project (USD485mn) further delays in the project is a downside risk. (Earnings release, Wafaa Baddour)   Elsewedy Electric: EGP79.55 as of 16 November 2016, Rating: Buy, FV: EGP57.30 per share, MCap: USD1,158mn, SWDY EY / SWDY.CA