EUR 113.14 For Business Accounts Only

Ideal exposure to Egypt’s healthcare sector; Initiate with Overweight

Outstanding growth justifies premium valuation. We initiate coverage on Ibnsina Pharma (ISP), Egypt’s fastest growing and second largest pharma distributor (19% market share), with an Overweight rating, and a 12-month TP of EGP11.50/share (c24% upside). An ongoing expansion spree, market share gains, along with economies of scale, are key growth drivers. ISP trades on a 2019e P/E of 14.2x, marginally below its peers’ 14.5x, despite growing the fastest at a 2018-20e EPS CAGR of 48% vs. peers’ 15%. We expect earnings releases to act as share price triggers.

Fastest growing player in an underserved market. ISP plans to increase its operational sites to 74 by 2022e, up from 55 in 2017e, at a cost of EGP20mn/site to increase nationwide coverage. We find ISP best-positioned within distributors to capitalise on rising demand, with the imminent implementation of the Universal Healthcare Insurance Act, which should significantly boost healthcare spending growth by an additional 2018-22e CAGR of 5% up to 26%.

Margins expanding despite austerity measures. We expect EPS to grow by 77% y-o-y in 4Q17 and 85% y-o-y in 2018, despite factoring in additional fuel subsidy hikes and a high inflation rate environment ahead. We raise labour costs (54% of costs) by an average of c19% p.a. over 2018-22e vs. an average inflation of 16%, and fuel costs (5% of costs) by an average of 37%.

Favourable industry dynamics. Pharma manufactures and pharmacies are fragmented sub-sectors in Egypt, benefiting ISP via low concentration; the 10 largest manufacturers and 4 pharmacies hold c45% and c9% market share, respectively. Distributors benefit from high barriers to entry, due to: i) wide geographic reach, and ii) difficulty building credit history with suppliers and retailers. Among Egypt’s pharma players, only EIPICO (8% volume market share) has its own distribution arm.