A sweet spot to capitalise on market dynamics
Reaping benefits of a well-selected product portfolio. We raise our TP of MTI by 10% to EGP13.8/share, as we roll over our model, consolidate Kanawat (ownership up to 69% in 4Q18 vs. 37.5%), and turn more bullish on the Auto business. We reiterate our Overweight call, looking for robust earnings growth of 55% in 2019, on growing market share for Huawei, margin normalisation for Samsung, on better managed inventory, and higher demand for luxury cars, post the Jan-19 tariff cuts. MTI trades in line with peers, on a 2019e P/E of 14.4x, but offers a superior 2019-21e EPS CAGR of 31% vs. peers’ 12%. MTI’s non-core investments add 10% to our TP.
Agile strategy to grasp opportunities. MTI’s focus remains on developing a higher-margin product portfolio. Rising Bosch sales and MTI’s share of Huawei sales (50% in FY19e vs. 30% in FY17e) are key drivers. We look for consumer electronics (CE) (74% of top line) GPM expansion of 70bps to 6.7% in FY19. Kanawat, solely reliant on Samsung, carries a lower GPM vs. MTI’s CE business (3.8% vs. 8.2% in 4Q18), but will help have better control of the market and lower the cannibalisation risk. We expect Auto sales (12% of top line) to surge 69% in 2019, as the aggressive cut in pricing (-20% on average) sparked demand; MTI has a solid backlog of 4 months.
Microfinance kick started; E-payment in the green. Vitas’ commercial operations started in Feb-19, with paid-in capital of EGP20mn to provide microfinance for up to EGP100k. Bee and Masary turned profitable in 4Q18, with a combined transaction value of EGP13bn in FY18 and targeted growth of 48% in FY19. We value e-payment on a P/E multiple, Tamweel at acquisition price, and Vitas at book, as we opt to wait for some KPIs as operations commence. We acknowledge the NBFS’ room for growth, but see them as a medium-term play for MTI, as operations are still at an early stage. Within our coverage universe, we expect Egypt’s microfinance players to grow aggregate loan book by 45% in 2019e and generate an estimated lucrative RoE of c40-60%.
MM Group for Industry and International Trade SAE is an Egypt-based company, which operates in the consumer electronics distribution and retail segment. The Company operates through five divisions: Automotive, which provides vehicle brands such as Land Rover, Jaguar, Maserati, Bentley and Ducati; Consumer electronics division includes distribution of mobile phones, televisions and air conditioners; Telecom business includes the operation of Vodafone branded retail franchises and distribution of mobile services and accessories to individual and business customers, including pre-paid and post-paid, e-top-up terminals, Vodafone-branded and non-branded mobile devices and accessories; Tractors division is engaged in the assembly and distribution of agricultural tractors, namely Belarus, as well as Supply of seamless steel pipes in Egypt.
CI Capital is a diversified financial services group and Egypt’s leading provider of leasing, microfinance, and investment banking products and services.
Through its headquarters in Cairo and presence in New York and Dubai, CI Capital offers a wide range of financial solutions to a diversified client base that include global and regional institutions and family offices, large corporates, SMEs, and high net worth and individual investors.
CI Capital leverages its full-fledged investment banking platform to provide market leading capital raising and M&A advisory, asset management, securities brokerage, custody and research. Through its subsidiary Corplease, CI Capital offers comprehensive leasing solutions, including finance and operating leases, and sale and leaseback, serving a wide range of corporate clients and SMEs. In addition, CI Capital offers microfinance lending through Egypt’s first licensed MFI, Reefy.
The Group has over 1,700 employees, led by a team of professionals who are among the most experienced in the industry, with complementary backgrounds and skill sets and a deep understanding of local market dynamics.
CI Capital has been recognized as the “Best Investment Bank in Egypt” by EMEA Finance for four years running from 2013-2016, and by Global Finance in 2014 and 2015.
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