EUR 30.92 For Business Accounts Only

ST headwinds, but still see value; Reiterate OW

Diversity to hedge against short-lived headwinds. MTI’s ongoing strategy to widen exposure to lower income brackets will help it withstand the shift in demand to lower-price-point SKUs, in our view. We cut MTI’s core business valuation by c7% to account for expected prolonged pick-up in consumption of discretionary products, as consumers rationalise spending. Our TP remains, nonetheless, at EGP12.8/share, as we opt to value MTI’s investments (c21% of TP) on a mixture between peers’ multiples and acquisitions value (vs. book value previously) on improved disclosure. The stock trades on a 2018e P/E of 17x (falling to 13x in 2019e) vs. 18x for peers.

Chinese brands continue to dominate. As affordability remains in question, Chinese brands are likely to continue gaining ground from higher price point smartphone brands. The top three Chinese players’ (Huawei, Oppo, and Infinix) blended market share grew to c50% in 1Q18 vs. c33% in 1Q17. We cut our consumer electronics revenue by 17% to EGP4.7bn in 2018e (+5% y-o-y), as we expect Samsung’s volume market share to drop by 8pp to 27% in 2018e (1Q18 market share fell to 29% from 38% in 1Q17), recovering gradually afterwards, and Huawei to maintain an 18% market share. We look for a GPM of 8.7% for the segment (+1.9pp y-o-y), as Huawei enjoys higher distribution margins vs. Samsung (8-10% GPM vs. 6-8%), and on increased contribution from household appliances (10-12% GPM).

Solid automotive order backlog. New model launches, at diversified price points, from Range Rover and Jaguar, throughout 4Q17 and 9M18, will likely capture market share from competition, as new launches carry competitive pricing, and fuel the auto segment growth (11% of 1Q18 top line). We expect auto sales to grow 48% in 2018, backed by MTI’s high-end clients’ strong purchasing power, mitigating the weakness in the consumer electronics, and contributing 47% of the growth in 2018.

NBFS offer synergies, but too early to move the needle. NBFS are in early stages, with potential to boost the core consumer electronics division by facilitating sale on credit; however, we believe the market will focus on MTI’s core operations in the short-term. MTI’s key NBFS investments are: i) a 55%-stake in Ebtikar, which has a 60% and 33.7% stakes in e-payment providers Bee and Masary, respectively, a 50% stake in Vitas (greenfield microfinance), and a c37%, direct and indirect, stake in Tamweel, and ii) an c11% indirect stake in Masary. We value e-payment and Qanawat on a P/E multiple, Tamweel at acquisition price, and Vitas at book value.