• Bottom-line turns negative on weak operations Net loss came in at EGP45mn vs. our net loss estimate of EGP58mn. However, the company’s bottom-line was boosted by one-off items that we did not expect, namely: i) FX gain of EGP24mn; and ii) capital gain of EGP10mn. Excluding these two items, the net loss would have come in at EGP83mn, we calculate. The net loss was driven by a weak performance at the operating level, as we expected. Revenue was 9% below our estimate, with the Q-o-Q weakening coming entirely from the financial services segment (Beltone), which fell 54% Q-o-Q. EBITDA came in at a loss of EGP39mn vs. our estimate of a loss of EGP13mn, with the main source of weakness being financial services, as the latter turned to losses after a profitable 1Q16.
• Results likely to further pressure the stock; reiterate Sell rating Overall, we see this as a disappointing set of numbers, and reiterate our Sell rating on the stock, as we still see some downside to current market price. There are no updates to developments of the situation in North Korea. Last quarter, the company’s updates on North Korea showed no tangible progress in the negotiations with the North Korean government for the potential merger between Koryolink and the government-owned operator; hence, in the event of failure of the talks, we remain of the view that it would be difficult for OTMT to recover the value of Koryolink if it was to dispose of the operation. We believe the two key elements necessary to improve Koryolink’s situation would: i) abating all operating and regulatory hurdles; and ii) allowing cash repatriation.

Omar Maher
Karim Riad