Porto Group (Porto) reported its financial and operational results for 4Q16. Contracted sales were weak (cEGP288mn), bringing the total contracted sales figure for the year to EGP2.3bn (+15% Y-o-Y). We note that c40% of the contracted sales figure from the year was booked in 3Q16 on strong sales at the company’s secondary home segment, overshadowing weaker demand seen on the company’s primary homes on rising affordability concerns, particularly having a negative impact on the segment, which Porto Group targets. Revenue was strong (EGP542mn, 2.5x average trailing three-quarter average) on bulk deliveries in New Cairo and Porto October, which we highlight as the only positive aspect of the results. Management indicated that it had revised upwards some of its cost estimates for its ongoing projects, which had brought about additional expenses; hence, pressuring gross profit margin to 26.3% in 4Q16 (3Q16: 35.8%, trailing three-quarter average: 35.6%). The quarter’s net profit figure was strong, albeit boosted by EGP25.9mn worth of FX gains, which explained roughly half of the figure. Cash flow from operations for the quarter and the year swung to the red, on intentional acceleration of construction, according to management, ahead of further expected cost increases. Revenue grew 21% Y-o-Y in 2016 to EGP1.3bn and net income by 239% Y-o-Y to EGP128.8mn (coming from a low base). The board has proposed the distribution of one bonus share for every 10.   Key negatives: Weak contracted sales figure for 4Q16, coming in at cEGP288mn, bringing the total for the year to EGP2.3bn (+15.0% Y-o-Y). The company is yet to report a breakdown for contracted sales, which we expect to have been concentrated in Porto Pyramids and Porto October   Gross profit margin was weak, averaging 26.3% (3Q16: 35.8%), which management had attributed to revised cost estimates for ongoing projects Low quality earnings, with FX gains explaining roughly half of the figure for the quarter of EGP54.2mn (+16.8% Y-o-Y). Net income totalled EGP128.8mn in 2016 (+239% Y-o-Y), compared to a low base Big jump in land liabilities related to Porto October, bringing the total to EGP264mn in December (vs. EGP189mn in September 2016 and EGP153mn in December 2015). The company’s net cash balance of EGP150mn falls short of this balance   Heavy negative cash from operations for the year, coming in at EGP424mn in the red, on accelerated construction pace, particularly in 4Q16   Key positives: Revenue more than doubled sequentially, coming in at EGP542.2mn, coming in with a concentration in Porto New Cairo and Porto October. 2016 revenue totaled EGP1.2bn (+21.1% Y-o-Y) Delinquencies were limited to 3% in 2016, according to management (Company disclosure, Sara Boutros, Mai Attia)   Porto Group: EGP0.26 as of 9 Feb. 2017, Rating: Neutral, TP: EGP0.27/share, MCap: USD67mn, PORT EY/PORT.CA