        Recurring net income: EGP118.6mn, +58% Y-o-Y, -28% Q-o-Q, -22% vs. EFGe
        Revenue: EGP1,929.6mn, +15% Y-o-Y, +0% Q-o-Q, -2% vs. EFGe
        EBITDA: EGP287.7mn, +8% Y-o-Y, -14% Q-o-Q,  -16% vs. EFGe
 
Juhayna reported 3Q18 results, with headline earnings up 83% Y-o-Y (-25% sequentially) on continued volume recovery, lower net finance costs (-18% Y-o-Y as net debt fell 20% Y-o-Y) and almost flat taxes Y-o-Y (effective tax rate of c11% vs. c19% a year ago). Recurring earnings growth was slightly lower at 58% Y-o-Y, mainly due to cEGP31mn in one-off end-of-service payments made in 3Q17. Net income, however, missed our estimate by 22%, mainly on weaker-than-expected margins. Revenue rose 15% Y-o-Y and came largely in line with our forecast (-2%), with growth largely volume driven. Of the three core segments, yoghurt (20% of 3Q18 revenue) posted the strongest growth (+17% Y-o-Y), followed by dairy (c49%; +15%), which was the biggest contributor to top-line growth, and juice (c23%; +13%). Meanwhile, concentrates (c4%) grew 7% and the Arla-Juhayna JV ‘Arju’ (c3%) increased 71% Y-o-Y (started selling carton pack white cheese in Oct 2017). Headline gross margin contracted c2.3pp to 27.6% (EFGe: 32.8%), with gross profit up only 6% Y-o-Y (-18% vs. EFGe), likely on price promotions, in our view. EBITDA margin narrowed a tamer c90bps Y-o-Y to 14.9% (significantly below our 17.4% forecast), as SG&A costs growth was limited at only 4% Y-o-Y, partly as Juhayna continued to bear the fruit of its cost-cutting measures in 2017 (c20% headcount reduction, etc.). Accordingly, EBITDA grew 8% Y-o-Y and was 16% below our estimate due to the gross profit miss.  
 
While solid volume and earnings recovery continue, supported by 2017’s cost-rationalisation efforts and deleveraging (net debt -20% Y-o-Y), the gross margin decline in the quarter is disappointing and is a risk to our numbers if it sustains. Nonetheless, we reiterate our Buy rating on Juhayna as the best play on Egypt’s consumer recovery story. (Company disclosure, Hatem Alaa, Nada Amin, Mirna Maher)
 
Juhayna: EGP9.90 as of 21 Oct. 2018, Rating: Buy, TP: EGP14.50/share, MCap: USD522mn, JUFO EY/JUFO.CA