• Recurring earnings +24% Y-o-Y on lower taxes, interest & minorities GB Auto posted operationally weak 4Q2015 results with headline earnings down 12% Y-o-Y to cEGP28mn on a number of non-recurring items including FX losses of cEGP60mn, provisions of cEGP19mn, and investment impairment of cEGP20mn. Recurring earnings grew 24% Y-o-Y mainly on: i) lower taxes Y-o-Y (EGP4mn versus EGP42mn a year ago) likely on losses at some of the Egyptian subsidiaries; ii) higher positive minority interest (EGP46mn vs. EGP3mn in 4Q14) indicating that losses at the 50%-owned Iraqi business have widened; and iii) lower net interest costs (-16% Y-o-Y). Despite the weak operational performance, we expect FX shortages to somewhat ease (and accordingly Egypt’s automotive market volumes should improve) following this week’s EGP devaluation.
• Top-line dips mainly on lower car volumes in Egypt and Iraq Revenue fell 23% Y-o-Y (-30% versus EFGe) as: i) Egypt car revenue (c43% of total) fell 34% Y-o-Y with volumes down 41% Y-o-Y mainly as Hyundai and Geely sales volumes fell 33% and 69%, respectively; ii) two-and-three wheelers (c17% of revenue) reversed strong growth trends seen in 9M15 with revenue dropping 17% Y-o-Y on lower volumes; and iii) Iraqi business remains challenging due to the poor economic and political backdrop (c7% of total; -56% Y-o-Y). Financing businesses (c11%; +14%) and after-sale services (c6%; +18%) continued to outperform.
• Segment margins widen across the board, but SG&A costs spike Gross profit was flattish Y-o-Y (+1%, -12% EFGe) with gross margin widening c4.1pp Y-o-Y on better margins across most segments predominantly passenger cars in Egypt (+c4.2pp Y-o-Y to 14.7%) due to higher selling prices and commercial vehicles (+6.3pp Y-o-Y to 14.4%) on sales mix (higher bus sales on public transport tenders). The EBITDA margin, however, improved by a far tamer c50bps Y-o-Y as SG&A costs surged 30% Y-o-Y (+10% versus estimate) with EBITDA falling 18% Y-o-Y and missing our estimate by 26%.

Hatem Alaa, CFA
Nada Amin