1. PRIME INVESTMENT RESEARCH
AUTOMOTIVE |EGYPT
GB AUTO – INITIATION OF COVERAGE
JANUARY, 14TH
2016
PRIME INVESTMENT RESEARCH
CONSUMER|EGYPT
VALUATION UPDATE – ORIENTAL WEAVERS
JANUARY,10TH
2017
We update our fair value for Oriental weavers (ORWE.CA) to EGP 19.21/share with an “Accumulate”
recommendation. This represents almost 90% increase in our fair value. We used an average WAAC of 14.17%, in
addition we accounted for a 2% FX premium for the company’s implied positive FX exposure.
We expect total sales volume to remain flat and revenue to surge in 2017. We expect a slim increase of 0.6% in total
sales volume in 2017, as lower local sales volumes, will be offset by the higher exports, and total sales volume standing
at 116mn SQM in 2017. Total sales revenues are expected to increase by 54.43% in 2017. We expect local sales volume
to start recovering gradually starting 2018, on the back of an anticipated economic recovery, reaching 138mn sqm in
2021.
Export market revenues yet to thrive, post EGP floatation. We almost doubled our assumption on the back of a
weaker EGP in respect to sales revenue, giving the fact that exports contributes to (50%+) of the company’s top line
and being able to cover its USD input needs, we assume 59% increase in export revenues in 2017. ORWE isn’t planning
to partially pass on the EGP devaluation benefits to international clients; instead we might witness an average 5%
discount in 2017, as the company view demand to remain healthy and prices competitive and further price discounts
isn’t essential in the time being. Additionally the good news was the company announcing USD 10-15mn of new orders
with International clients expected in 2017.
Local market sales volumes will suffer, as price hikes would negatively affect demand. ORWE has increased local
prices in November and December following the floatation by 40%, assuming 15 EGP/USD exchange rates. However
according to the management guidance local sales has remained solid Y-o-Y during these 2 months, that we view might
be driven by the consumer fear of further price increase beyond this level. However, current local products are priced,
using 18-19EGP/USD depending on product category representing on average further 26% increase in selling price on
average in 2017, all of which will pose pressures on local market sales volume, especially that high inflation pressure
will keep negatively affecting the purchasing power of the consumer. However expected growth of almost 23% in
2017, resulting mainly from these price hikes to counterpart distressed volumes and maintain profitability. But it’s
worth mentioning that although the company products are categorized as (non-essential durable), that should cap the
company ability in further hikes prices, this won’t be that significant for oriental weaver, given the fact of the little
domestic competition, the ability to produce less costly lower grade products.
New export rebate program to further improve the company’s earnings outlook. The government has officially
approved the new rebate on the 4th of January 2017. Based to the company expected allocation of exports in free
zone and non-free zone, the average incentive rate is expected to be around 7.4%, compared to an average of 6%
previously assumed in our model, which is certainly positive for the valuation. Alongside further incentives subject to
increasing USD sales, Africa exports and new market penetration, all of which should improve the company’s earnings
outlook if properly triggered.
The company is planning to add to 5-7 looms per year starting 2017, with a capacity of 4-5 million sqm, pending the
market demand. However we accounted for additions of 5 loom/year with a price/loom of EUR 1.3mn, mostly
financed with debt. According to the management guidance, projected capacity is expected to reach 159.5 million sqm
by 2020.
We view a sharp rebound in the PP prices as a major downside risk, with the crude oil prices starting to pick up
again. As we expect PP price to bounce to USD 1,179/ton in 2017 and USD 1,453/ton in 2021, which might distort
the company’s profitability margins.
Hefty currency translation differences are expected to surge equity during the 4Q2016, mainly resulting from fixed
assets revaluation in foreign subsidiaries. As of 1Q2016 net fixed assets increased by EGP 199mn, representing the net
increase in currency translation differences, after EGP devaluation in March 2016. Thus currency translation
differences in equity, witnessed an increase of EGP 365mn for the same period. Moreover post the floatation in
November, 2016 significant increase in fixed assets is expected on the back of the translation differences and
accordingly further hikes is expected in equity translation reserve balance.
ORIENTAL WEAVERS , NATURAL HEDGE AGAINST EGP FLOATATION … SIGNIFICANT PRICE HIKES TO
MAINTAIN PROFATBILITY … DISSTRESED VOLUMES ARE EXPECTED IN THE SHORT RUN
“ACCUMULATE”
MARKET PRICE EGP 16.75
FAIR VALUE EGP 19.21
UPSIDE 14.6%
Stock Data
Outstanding Shares [in mn] 450.0
Mkt. Cap [in mn] 7,191.0
Bloomberg – Reuters ORWE EY / ORWE.CA
52-WEEKS LOW/HIGH EGP 4.87– EGP 17.3
Ownership
Khamis Family 57%
Foreign institutions 23%
Local institutions 17%
Retail 3%
All prices are as of 9 January 2017
Source: Bloomberg
0
5
10
15
20
1/6/2016
2/6/2016
3/6/2016
4/6/2016
5/6/2016
6/6/2016
7/6/2016
8/6/2016
9/6/2016
10/6/2016
11/6/2016
12/6/2016
1/6/2017
ORWE.CA EGX30 - rebased
1

2. PRIME INVESTMENT RESEARCH
ORIENTAL WEAVERS – VALUATION UPDATE
JANUARY, 2017
Income Statement Brief Hist. Forecast
In EGP Mn 2015 2016E 2017F 2018F 2019F
Revenues 5,875 7,029 10,353 10,456 10,888
Change N/A 19.64% 47.29% 0.99% 4.13%
COGS 5,009 5,909 8,610 8,934 9,188
Change N/A 17.98% 45.71% 3.77% 2.85%
Depreciation & Amortization (333) (408) (671) (695) (711)
Gross Profit 867 1,120 1,743 1,522 1,699
GPM 14.75% 15.94% 16.84% 14.55% 15.61%
EBITDA 698 1,050 1,643 1,476 1,607
EBITDA Margin 11.87% 14.94% 15.87% 14.11% 14.76%
Net Income After MI 356 533 864 712 820
NPM 6.07% 7.58% 8.35% 6.81% 7.53%
Balance Sheet Brief Hist. Forecast
In EGP Mn 2015 2016E 2017F 2018F 2019F
Assets
Cash 370 1,931 2,302 2,623 2,829
Net Receivables 1,251 1,719 1,899 1,890 1,968
Net Inventory 1,588 2,001 2,916 3,050 3,137
Other Current Assets 405 649 380 378 392
Total Current Assets 3,613 6,301 7,497 7,941 8,325
Net PPE 2,577 4,309 3,966 3,688 3,257
Net Intangibles 326 326 326 326 326
Other LT-Assets 191 162 219 209 162
Total Long Term Assets 3,095 4,797 4,512 4,223 3,745
Total Assets 6,708 11,098 12,009 12,164 12,070
Liabilities
Accounts Payable 726 809 1,321 1,371 1,410
Other Current Liabilities 1,497 2,369 2,747 2,821 2,764
Total Current Liabilities 2,223 3,178 4,068 4,192 4,174
LTD 120 669 486 374 153
Other Long Term liabilities 150 175 182 159 147
Total Long Term Liabilities 270 843 668 534 300
Total Liabilities 2,493 4,021 4,737 4,725 4,474
Equity
Paid-in-Capital 435 435 435 435 435
Reserves 2,219 4,943 4,988 5,033 5,131
RE 1,180 1,299 1,417 1,514 1,543
Minority interest 381 400 431 457 487
Total Equity 4,215 7,077 7,272 7,439 7,597
Margins & Ratios
2015 2016E 2017F 2018F 2019F
GPM 14.75% 15.94% 16.84% 14.55% 15.61%
EBITDA Margin 11.87% 14.94% 15.87% 14.11% 14.76%
NPM 6.07% 7.58% 8.35% 6.81% 7.53%
EPS 0.79 1.18 1.92 1.58 1.82
P/E 20.18 13.50 8.32 10.10 8.77
EV/EBITDA 11.77 7.72 4.78 5.07 4.35
ROA 5.34% 5.98% 7.48% 5.89% 6.77%
ROE 8.76% 9.43% 12.04% 9.68% 10.91%
2

3. PRIME INVESTMENT RESEARCH
ORIENTAL WEAVERS – VALUATION UPDATE
JANUARY, 2017
Stock Recommendation Guidelines
Recommendation Target-to-Market Price (x)
Buy x > 15%
Accumulate 5%< x <15%
Hold -5% < x < 5%
Reduce -15% < x < -5%
Sell x < -15%
Strong Buy x > 40%
Investment Grade Explanation
Growth 3 Yr. Earnings CAGR > 20%
Value Equity Positioned Within Maturity Stage of Cycle
Speculative Quality Earnings Reflect Above Normal Risk Factor
3

4. PRIME INVESTMENT RESEARCH
ORIENTAL WEAVERS – VALUATION UPDATE
JANUARY, 2017
PRIME SECURITIES
Hassan Samir Managing Director  +202 3300 5611  Hsamir@egy.primegroup.org
RESEARCH TEAM
Aboubakr Emam, CFA Head of Research  +202 3300 5724  Aemam@egy.primegroup.org
Eman Negm, MSc Economist  +202 3300 5716  Enegm@egy.primegroup.org
Mohamed Marei Equity Analyst  +202 3300 5725  Mmarei@egy.primegroup.org
Ali Afifi Equity Analyst  +202 3300 5723  Aafifi@egy.primegroup.org
Omneya El Hammamy Equity Analyst  +202 3300 5718  OelHammamy@egy.primegroup.org
Taher Seif Equity Analyst  +202 3300 5719  tseif@egy.primegroup.org
Mohamed Magdi Junior Equity Analyst  +202 3300 5720  Mmagdi@egy.primegroup.org
Mai Abdelaziz Junior Analyst  +202 3300 5727  Mabdelaziz@egy.primegroup.org
SALES TEAM
Mohamed Ezzat Head of Sales & Branches  +202 3300 5784  mezzat@egy.primegroup.org
Shawkat Raslan Heliopolis Branch Manager  +202 3300 5110  sraslan@egy.primegroup.org
Amr Alaa, CFTe Team Head – Institutions Desk  +202 3300 5609  aalaa@egy.primegroup.org
Amr Saber Manager  +202 3300 5659  asaber@egy.primegroup.org
Mohamed Elmetwaly Manager  +202 3300 5610  melmetwaly@egy.primegroup.org
Emad Elsafoury Manager  +202 3300 5624  eelsafoury@egy.primegroup.org
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