        Reported net income: EGP93.8mn, vs. a net loss of EGP222.6mn, -61% Q-o-Q, +42% vs. EFGe
        Revenue: EGP7040.5mn, 28% Y-o-Y, -11% Q-o-Q, +12% vs. EFGe
        Gross profit: EGP941.1mn, 58% Y-o-Y, -22% Q-o-Q, +23% vs. EFGe
        EBITDA: EGP478.2mn, 67% Y-o-Y, -41% Q-o-Q, +5% vs. EFGe
 
GB Auto reported its 4Q18 results with headline net profit of EGP93.8mn – its fourth quarter in the black after five consecutive loss-making quarters – compared to net loss of EGP222.6mn in 4Q17 as: i) GB Capital business reported very strong figures posting earnings of EGP125.4mn, up 45% Y-o-Y; and ii) net interest costs were down 11% Y-o-Y to EGP287mn on lower interest rates. This managed to offset net loss of EGP47mn in the auto business. Earnings were 42% above our estimate on stronger-than-expected revenue and margins. FY18 earnings reached EGP515.7mn, reversing the loss of EGP666.9mn recorded in FY17.
 
Revenue for the quarter grew 28% Y-o-Y (+12% vs. EFGe), driven by: 
        GB Capital (c15%) revenue rose 39% Y-o-Y (+6% Q-o-Q).
        Two- and three-wheelers (c15%) +52% Y-o-Y on a 54% increase in volumes (3-wheelers at all-time high of 27.8k), supported by production localisation of motorcycles at Badr factory from end-2017. The business also benefits from its strong partnership with GB Capital's Mashroey, which offers asset-based lending for three-wheelers.
        Regional sales (c18%) saw revenue grow 93% Y-o-Y on strong volume growth for Iraq passenger cars (+34% Y-o-Y) and two- & three-wheelers (6,525 units in 4Q18 or c2,175 units per month compared to c815 units in 4Q17. 
        Other segments: i) Egypt passenger cars (c35%) was flat as the decline in volumes -15% Y-o-Y was offset by a 17% increase in average price/unit, mainly on a change in sales mix (market share declined to 25.4% as of FY18 compared to 31.1% in FY17); ii) commercial vehicles (c6%) +33% (volumes +11% on buses); iii) Egypt after-sales (c4%) +9%; and iv) tyres (c4%) +40%.
 
Revenue for the year grew 46% Y-o-Y as the auto business top-line increased 47% Y-o-Y on recovering demand and improved sales mix, while GB Capital sales increased 44% Y-o-Y. Headline gross margin widened c3.4pp to 12.4% (vs. EFGe of 10.4%) as: i) Egypt’s passenger car division saw a turnaround, with its margin gaining c6.3pp to 8.6% on better mix and as last year’s margins were deflated (c2.4%), partly as the company was offloading excess CKD inventory; ii) GB Capital +4pp to 29.1%; iii) regional sales +6.5pp to 5.0%; and iv) two- and three-wheelers +c1pp to 13.4%. After-sales margin contracted c2.2pp to 22.8%, while commercial vehicles margins narrowed -8.1pp to 5.4% and tires -5.6pp to 14.8%. EBITDA margin gains were lower at c1.6pp to 6.8%, with EBITDA +67% Y-o-Y (+5% vs. EFGe) as SG&A costs grew +45% Y-o-Y (+44% vs. EFGe). Operating profit growth was stronger at 136% Y-o-Y (+22% vs. EFGe) as depreciation costs fell 32%.
 
Key KPIs for GB Capital remained very robust: i) Annualised ROAE: 30.5%; ii) ROAA: 22.3%; iii) NPLs 1.2%; iv) NPL coverage 212%; v) portfolio size EGP8.1bn (+13% Q-o-Q – securitised EGP355mn of GB Lease loans); and vi) leverage of 3.88x (3.12x under regulatory definition, ceiling 8-10x), up from 2.98x in 3Q18. 
 
Balance sheet trends: Inventory levels increased 20% Q-o-Q (+59% Y-o-Y), given the slowdown in the Egyptian market in anticipation of the reduction of customs duty on European imports, with days on hands of up to 80 days vs. 60 in 3Q18 (FY18 average days on hand decreased to 71 days compared to a high of 160 days in 2017). Auto business net debt was almost flat Q-o-Q (-1%) at EGP5.0bn (+31% Y-o-Y). 
 
While the return of the auto business to losses and inventory build-up are concerns (signaling a potentially weak 1Q19e), GB Capital continued to perform strongly and see a big uptick in earnings that will likely continue through 2019e. We have a Buy rating on the stock. 

Hatem Alaa, Nada Amin
 
GB Auto: EGP5.22 as of 27 Feb. 2019, Rating: Buy, TP: EGP7.50/share, MCap: USD326mn, AUTO EY/AUTO.CA