Efficiently growing revenue sources; Reiterate OW
Raise TP by 23% to EGP16/share. We raise our 2018-20 EBITDA by 20% on average, as we factor in the Bosch distribution agreement, Huawei’s strong outperformance, and higher traffic expected from revising Vodafone’s agreement. MTI’s ownership in non-banking financial services platforms (o/w c12% in Masary, 45% in Bee; combined has c46% of e-payment market in Egypt) is an upside to our valuation (we value investments at book). Despite the stock’s sharp 6M rally (+73% vs. EGX30 +11%), MTI remains cheap with 2018e P/E of 12x (falling to 7.8x in 2019e) vs. 16x for peers.
Chinese brands’ takeover offsets Samsung’s lost ground. Samsung’s 9M17 market share fell to 39% from 47% y-o-y, mainly to lower price point Chinese players, with the top three players growing their combined market share to 36% from 25%. Huawei, whose phones MTI started distributing in May-17, grew its market share to 18% (+1 pp), with MTI executing 40% of its sales. Smartphone demand remains resilient (9M17 volume flat, value +65%), fuelled by Egypt’s low smartphone penetration rate (30% vs. 70% global average). We raise MTI’s share of Huawei to 30% (20% in previous estimate) and assume a gradual drop in Samsung’s market share to 35% by 2020 (43% in previous estimate), leaving us with c16% higher 2017-21e mobile phone revenue.
Venturing into higher margin household appliances. On 18 Jan-18, MTI signed a distribution agreement with BSH Group (Bosch), the world’s second largest household appliances producer. The deal carries more lucrative margins vs. mobile phone sales (GPM of 10-12% vs. 6-10%), and requires no additional capex, as MTI’s fleet can cater for the new products. We expect Bosch to add EGP150mn to MTI’s revenue in 2018 (25% below guidance), hedging for possible delay in launching sales (planned in Feb-18).
Vodafone decreases its authorised agents, MTI here to stay. Vodafone terminated its retail franchise agreements with two agents, leaving only MTI and First on the table. Vodafone also decided to cut its margins to 1.8%, down from 2.15%, effective Jan-18. We see MTI as a net beneficiary, since lowering the number of agents should raise the company’s share of revenue. We raise MTI’s 2018-21 GP from telecom by an average of 20%. The recent NTRA ban on sale of mobile phone lines through distributors only applies to unbranded stores and not MTI.
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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