4Q18 financial highlights 
Revenues: AED357mn, +2% Y-o-Y, -19% Q-o-Q, -12% EFGe
EBITDA: AED188mn, +15 Y-o-Y, +4% Q-o-Q, +29% EFGe
Net income: AED108mn, -4% Y-o-Y, +1% Q-o-Q, +43% EFGe
 
National Central Cooling Co (Tabreed) reported its 4Q18 financial results on Thursday, showing earnings of AED108mn (+1% Q-o-Q, -4% Y-o-Y), which beat our estimate of AED76mn by 43%. Revenues missed our expectations by c12% to reach cAED357mn (vs AED404mn EFGe), likely on lower-than-expected consumption volumes during winter months that have a negligible impact on overall profitability. Tabreed recorded an impressive EBITDA of AED188mn during 4Q18 (+4% Q-o-Q, +15% Y-o-Y), which was c29% above expectations. The EBITDA beat was mainly driven by i) higher-than-expected financial lease amortisation of AED35mn vs AED17mn in 3Q18 and our estimate of cAED16mn; as well as ii) seemingly some cost efficiency gains in the quarter. EBITDA margins expanded to c52.6% in 4Q18 vs 46.7% 4Q17. 
 
Below the operating line, the company continued to show a strong performance as interest expenses were slashed to only AED30mn, below our estimates of AED45mn. This was mainly driven by a gain on the restructuring of the company’s Sukuk facilities worth AED12.1mn. Excluding this one-off gain, interest expenses would have come in at cAED42.3mn and earnings would have come at AED96.1mn (still 26.5% ahead of expectations). 
 
BoD proposes AED9.5 fils/share DPS for 2018; above EFGe: With Tabreed reporting impressive results for the year, the BoD has proposed a decent uptick in the DPS to AED9.5 fils, which implies a dividend yield of 5.5% and a payout ratio of c60%. The dividend comes as a positive surprise to our estimate for a DPS of AED8.5 fils.  
 
Our take on Tabreed; reiterate Buy: Overall, a solid set of results coming for Tabreed at the end of 2018, which beat our expectations on an operational level as well as on one-offs. We think that the company still presents a solid investment proposition on its: i) defensive FCF yield of +10%; ii) attractive dividend yield of c5.5%, which is a premium to MENA utility names; and iii) as it trades at a 2019 PE multiple of c11x with further growth potential that may offer upside to our estimates. Accordingly, we reiterate our Buy rating on the name. 

Ahmed Hazem Maher, Menna Khafaga

  
Tabreed (DU): AED1.73 as of 30 Jan. 2019, Rating: Buy, TP: AED2.30/share, MCap: USD1,280mn, TABREED UH/TABR.DU