• Continued challenges in building permits in Rehab drag 2Q16 contracted sales TMG Holding (TMG) reported its headline figures for 2Q16. Contracted sales were weak, coming in at EGP1.5bn (-11.7% Y-o-Y, -35.1% Q-o-Q, -17.8% vs. EFGe), bringing 1H16 contracted sales to EGP3.8bn (+7.3% Y-o-Y). Management is targeting to increase its contracted sales by 10% Y-o-Y to EGP6.9bn in 2016, while our model assumes EGP6.7bn. 2Q16 sales were generated from Madinaty project, according to management, with challenges to secure building permits at Rehab still persisting. Only PHD reported its contracted figures for the quarter to date, showing a 25% Y-o-Y drop in 2Q16 to EGP877mn and 18% Y-o-Y growth in 1H16 to EGP2.8bn.
• Headline reported numbers carry slight surprises 2Q16 reported revenue came in at EGP1.7bn (-3.2% Y-o-Y, +40.9% Q-o-Q, +19.6% vs. EFGe), gross profit was EGP583mn (+2.5% Y-o-Y, +65.7% Q-o-Q), translating into a Gross Profit Margin (GPM) of 34% (2Q15: 32.2%, 1Q16: 29.0%). Net income was EGP227mn (9.9% Y-o-Y, 9.2% Q-o-Q, -12.6% vs. EFGe). 1H16 revenue came in at EGP2.9bn (+0.6% Y-o-Y), gross profit EGP935mn (+6.1% Y-o-Y) and net income EGP435mn (+10.0% Y-o-Y). We estimate revenue at EGP6.56bn in 2016e and EGP998mn in net income. The company is expected to publish its full financial statement tomorrow, along with its earnings release that would give us more insight into the performance of the hotel segment.
• Upside potential of 79% to our FV; highest in our coverage Our FV of EGP10.25/share offers the highest within our coverage universe. TMG has been a laggard to its peers (-12% YTD, second worst after Porto Group). We see no short-term positive stock triggers. We attribute the stock weakness to lagging contracted sale numbers over the past 12-18 months and to increased concerns over affordability, which is mostly evident for TMG, given its focus on the middle-income segment.

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