Oriental Weavers (OW) posted its 4Q18 results yesterday, with headline earnings down 23% Y-o-Y (+8% Q-o-Q) to EGP103.8mn. However, excluding non-recurring items (net provisions and FX losses/gains), earnings declined a tamer 16% Y-o-Y to EGP129.1mn largely as margins remained under pressure (mostly on PP costs) and missed our estimate by 12%. FY2018 earnings declined 26% Y-o-Y to EGP503.7mn.
 
Revenue increased 4% Y-o-Y (+5% vs. EFGe) to EGP2804.8mn during the quarter as total volumes increased 3% Y-o-Y; local revenue (32% of total) grew 2% while export revenues (c68%) rose 5% mostly on higher sales to a key EU client.
 
The company recorded a 59% increase in interest and treasury income through investments in high-yield treasury bills and interest-bearing current accounts, which offset the 18% increase in interest expenses during the quarter. OW’s debt is 75.5% in USD, 24.0% in EUR and 0.5% in EGP.
 
The company’s BoD has proposed a DPS of EGP1.5/share, in line with our forecast and last year’s dividend. This implies a payout of 134% and a yield of 12.5%
 
The results are directionally in line with our expectations with the key headwinds being relative volume softness as well as elevated PP costs. However, we expect earnings to stabilise in 2019 as volumes improve and due to less cost pressure. We have a Buy rating on the name.

Nada Amin, Hatem Alaa, CFA

Oriental Weavers: EGP11.98 as of 28 Feb. 2019, Rating: Buy, TP: EGP12.50/share, MCap: USD304mn, ORWE EY/ORWE.CA