-          Recurring net loss (before taxes and minorities): EGP35.0mn, vs. net profit of EGP98.5mn in 4Q15, vs. EFGe: EGP133.1mn

-          Reported net loss: EGP1.06bn, vs. net profit of EGP28.1mn in 4Q15, vs. EFGe net losses: EGP360mn

-          Revenue: EGP4,110.8mn, +53% Y-o-Y, -5% Q-o-Q, +21% vs. EFGe

-          Gross profit: EGP780.2mn, +55% Y-o-Y, +19% Q-o-Q, +10% vs. EFGe

-          EBITDA: EGP250.7mn, +5% Y-o-Y, -33% Q-o-Q, -23% vs. EFGe

GB Auto reported its 4Q16 results, with a headline net loss of EGP1.06bn, impaired by FX losses of cEGP1bn on revaluation of USD107mn in FX liabilities (mainly supplier payables). The company also booked EGP144mn in provisions, mainly to reflect the impact of the EGP float on the cost of service delivered under warranty. Excluding one-offs, bottom-line before taxes and minority was still in the red, at EGP35mn, vs. a net income of EGP98mn a year ago on higher SG&A expenses and net interest costs (more than doubled Y-o-Y to EGP212mn on higher interest rates and leverage, as net debt rose EGP1.5bn Q-o-Q for working capital requirements). Revenue surged 53% Y-o-Y (+21% vs. EFGe), driven mainly by Egypt passenger car sales (43% of 4Q16 sales), which rose 80% Y-o-Y (mainly price-driven, as volumes fell 1%; bulk of price increases pre-float – only upped prices c15% on average over Nov. 2016 – Mar. 2017). The company continued to gain strong market share in the quarter (32.7% vs. 26.8%). Other segments that performed strongly were: i)  financing (c11%) +77%; ii) after-sale (c6%) +86%; and iii) tires (c3%) +106% on introduction of own brand Verde in May, as well as some new representations. Two- and three-wheelers (c17%) continued to underperform (-25% Y-o-Y), as volumes fell (-47%) due to the high price elasticity of target customers. While October was a strong sales month, demand slowed substantially for cars and two- & three-wheelers from November (floatation of the EGP), with weakness continuing through 1Q17; the company sold 5,800 cars in Oct. (and 9k two- and three-wheelers) vs. an average of 2,600 (c2-5k) over Nov. - Dec. Headline gross margin was flattish at 15.7% (gross profit +55% Y-o-Y, +10% vs. EFGe), as better mix and margin improvement across most segments (most notably commercial vehicles – c10% of sales – that add c6pp Y-o-Y) were offset by drops in margins of: i) Egypt passenger car margins (-1pp); and ii) two- and three-wheelers (-8pp) on inability to fully pass on devaluation-related cost pressures. EBITDA margin fell c2.8pp Y-o-Y to 6.1%, with EBITDA advancing only 5% Y-o-Y (-23% vs. EFGe), as SG&A costs nearly doubled Y-o-Y (+39% vs. EFGe).

A mixed results set, with the spike in SG&A costs being the main negative surprise. While some high-margin segments (financing, after-sale, etc.) will likely continue to perform strongly in 2017, we believe Egypt passenger car sales will remain weak for some, which may be a challenge, given high inventory levels (doubled Y-o-Y). We will revise our estimates to reflect the results.

GB Auto: EGP2.80 as of 26 Mar 2017, Rating: Buy, TP: EGP3.80/share, MCap: USD168mn, AUTO EY/AUTO.CA