Eastern Tobacco Company (EAST.CA) - Arabeya Online · Bangladesh, India and Philippines. The five largest cigarettes consuming nations, namely; China, Indonesia, Russia, USA, and

Eastern Tobacco Company (EAST.CA) Initiation of Coverage

18 October 2018

Source: Investing.com

Major Shareholders

Chemical Industries Holding

55%

ESOP 6% Source: EAST

Source: Investing.com & AOLb Research

Investment Summary

EAST is the sole tobacco manufacturer in Egypt with a 72%

market share at a 100bn cigarette/year capacity. EAST demand

sustained is by accelerating population growth with a wide

market of 79mn, out of which 60% adults. Demand is projected

at 73.5bn cigarette in 2019f, which is inelastic at elasticity of > 1

for income and at -0.3 for price. Egypt ranks top fifth consumer

in MENA Region at 1,100 cigarettes per adult and positioned top

seventh cigarette producer globally in 2017.

AOLb projects revenue at EGP16.0bn (+19.5%), with 38.1% GMP,

while NP at EGP3.8bn (-9.5%), with NPM at 23.9%, contraction

from FY2018 is due to USD750mn time deposit revaluation.

FY2019f-22f revenue CAGR is 22% and FY2019f-22 NP CAGR is

32%. In FY2020f, NP projected at EGP4.9bn (+30%), at 26% NPM.

EAST has exposure to forex risks because of dependency on

100% raw materials imports (comprising 73% of total costs),

albeit US/EGP exchange rate is stable with expected only

gradual minor increases of +5% YoY to EGP19.0 in FY2019f.

We value EAST on combined valuation basis, with DCF-based FV

at EGP22.0/share and NAV of 157.2k sqm land at EGP1.5/share,

yielding a combined FV of EGP23.5/share, 48% upside potential.

EAST forward 2019f PE is at par with EGX industry average PE of

9.4x, yielding a forward P/E multiple FV of EGP16.0/share.

Financial Indicators and Valuation Multiples

Year 30 Jun 2017a 2018a 2019f 2020f 2021f

Revenue (EGP mn) 10,541 13,410 16,027 18,918 23,146 Net profit (EGPm) 2,978 4,240 3,823 4,956 6,762 EPS (EGP) 1.3 1.9 1.7 2.2 3.0 EPS (% YoY) 102% 42% -10% 30% 36% PE (x) 12.0 8.4 9.3 7.2 5.3 EV/EBITDA (x) 7.8 6.4 5.5 4.4 3.3 P/CF (x) 5.6 13.1 8.2 7.7 5.7 ROAE (%) 42% 55% 46% 55% 57% P/BV (x) 4.0 4.0 5.3 6.1 7.9 Dividend yield (%) 3.2% 5.0% 5.3% 6.1% 7.9%

Based on Closing Price of 17th of October Source: EAST and AOLb estimates

0

10

20

30

EAST EGX30 Rebased

Recommendation BUY Fair Value EGP 23.5 Market Price EGP 15.9 Upside Potential +48% Offering Price EGP 16.9 Offering Range EGP 15.2-18.6

Stock Data

Reuters Code EAST.CA

Authorized Capital (bn) 3,000

Issued Capital (mn) 2,250

No. of shares (mn) 2,250

Par Value 1.0

Market Cap (mn) 34,537.5

Price 15.9

Highest (1yr range) 30.1

Lowest (1yr range) 13.4

Average (1yr range) 22.6

Free Float 39%

Sally Fawzy Mikhail

Director

[email protected]

Mostafa Shafie

Equity Analyst

[email protected]

mailto:[email protected]


1


18 October 2018

Contents Global Tobacco Overview ...............................................................................................................................2

Cigarettes consumption growing in developing countries .....................................................................................2

MENA region market share increased to 9% in 2017 from 7% in 2005 .................................................................2

Regional Tobacco Overview ...........................................................................................................................3

Egypt ranks fifth in cigarettes consumption in MENA Region................................................................................3

Egypt Tobacco Industry Outlook .....................................................................................................................3

Accelerating demand sustained by population growth, with male consumption dominance ..............................3

Wide Tobacco market span with +18 yrs are 60% of the population ....................................................................4

Tobacco demand to reach 73.5bn cigarette in 2019f with +3.6% YoY growth ......................................................4

Egypt is eighth cigarette producer globally at 80bn stick ......................................................................................4

Tobacco demand is significantly inelastic to income and price levels ...................................................................5

Inelastic cigarettes demand is perfect for government tax excise.........................................................................5

Tobacco international investors eying Egypt .........................................................................................................6

Company Overview ........................................................................................................................................8

Attractive secondary offering .................................................................................................................................8

Listing in MSCI Egypt Index & EGX30 adds to the stock attractiveness .................................................................9

Business Operation ...................................................................................................................................... 10

Fully-fledged tobacco producer, with supremacy of cigarettes production ....................................................... 10

Sole cigarettes manufacturer with over 73% market share ................................................................................ 11

EAST brands topping the list of the most popular cigarettes .............................................................................. 11

Resilient demand despite shifting hefty taxes to consumer prices .................................................................... 12

Production utilization rates on the rise for cigarettes, albeit down for moassel ................................................ 13

Strategic cooperation with international companies yields higher than average profit margin ........................ 14

Financial Analysis & Forecasts ...................................................................................................................... 16

Revenue to grow by 19.5%% driven by high cigarettes demand ........................................................................ 16

Higher demand for cigarettes, while moassel declining and cigar stable ........................................................... 17

Gross Profit firm at 20% advancement, with GMP solid above 38% level to increase thereafter ...................... 18

Net profit minor contraction in FY2019f, to improve starting FY2020f .............................................................. 18

Valuation ..................................................................................................................................................... 20

2


18 October 2018

Global Tobacco Overview

Cigarettes consumption growing in developing countries

World Health Organization (WHO) estimated that around one-third of the world's population

currently smoked, out of which 47% men and 12% women. In 2017, over 5.4tn cigarettes were sold.

Although smoking rates are declining in developed countries, tobacco consumption continues to rise

in developing countries at a rate of 3.4% annually. The gender difference in smoking rates is

significantly apparent in developing countries (7x) versus developed countries (2x). By 2022f,

analysts project the global cigarette volume will decline by 8.0% and value contract by 0.3%

MENA region market share increased to 9% in 2017 from 7% in 2005

Sales are shifting from developed markets, like those in Western Europe, where smoking prevalence

is declining and where tobacco company operations are more restricted by government policies, to

emerging markets, like those in Asia and Africa, where tobacco companies take full advantage of lax

regulatory environments, growing populations and increasing incomes. In 2017, Asia Pacific was the

largest region in the tobacco market, accounting for 49% market share, while Eastern Europe was the

second largest region accounting for 17%. Middle East and North Africa (MENA) region ranked third

with 9% market share. South America was the smallest region accounting for 2% market share. From

2005 to 2017, cigarette sales in the Asia Pacific and Middle East and Africa regions have expanded,

while all other regions have experienced contraction. Over the past decade, MENA region market

share increased to 9% in 2017 from 7% in 2005 (Euromonitor, The Global Cigarette Industry, 2018.)

Global Cigarette Market by Region Evolution

Source: Euromonitor International 2018

Asia Pasific 55% Eastern

Europe 13%

Western Europe

12%

North America

8%

MENA 7%

Latein America

5%

2005

Asia Pasific 64%

Western Europe

9%

MENA 9%

Eastern Europe

9%

North America

5%

Latein America

3%

Australasia

1%

2017

3


18 October 2018

Regional Tobacco Overview

Egypt ranks fifth in cigarettes consumption in MENA Region

More than 1.1bn people smoke

almost daily, and while smokers

continue to decline in

developed countries, the

proportion of smokers in

developing countries are

increasing steadily. Eastern

Europe has the highest number

of cigarettes consumed per

capita, where Serbia is one of

the most consumed peoples of

the world. While the ranking of

Arab countries according to the

number of cigarettes consumed by each person starts with Lebanon in first place with 2.1k cigarette

per adult, Kuwait comes second with 1.8k cigarette per adult; Tunisia comes thirdly with an annual

average of 1.6k cigarette per adult. Fourthly, Jordan has an annual average of 1.3 cigarette per adult,

while Egypt comes in fifth place with 1.1 cigarette per adult.

According to WHO report on global tobacco, smoking rates in the Middle East and North Africa

(MENA) region ranged from 15.1% of adults in Morocco to escalate to 38.5% in Lebanon. The

smoking rate is higher amongst men than women, where rates in men ranged from as low as 20.2%

in Saudi Arabia to as high as 62.0% in Syria, whereas in women it ranged from the lowest at 0.2% in

Morocco to the highest at 31.5% in Lebanon.

Egypt Tobacco Industry Outlook

Accelerating demand sustained by population growth, with male consumption dominance

In Egypt, 20.9% of adults (age range 15-59 years) smoke tobacco. Smoking rates are much higher

among men than among women; 46.4% men and 0.2% women smoke tobacco. The latest statistic

from the World Health Organization showed that 50% of Egyptian males over the age of 15 years

smoke cigarettes. According to forecasts, this figure could reach 63% by 2020, exceeding estimates in

other Arab countries, including Lebanon, Saudi Arabia and Morocco. Tobacco volume sales

continued to increase in Egypt during 2017, mainly due to population growth as the main demand

growth driver for tobacco.

MENA Region Top Cigarettes Consumers in 2017

Source: World Health Organization

2.1

1.8 1.6

1.3 1.1

0

0.5

1

1.5

2

2.5

Lebanon Kuwait Tunisia Jordan Egypt

Thousands

Cigarettes Consumed per Adult per Year

4


18 October 2018

Wide Tobacco market span with +18 yrs are 60% of the population

According to Central Agency for Public

Mobilization and Statistics (CAPMAS), Egypt’s

population reached 94.79mn in 2017, with

accelerating population growth rate of 2.56%

YoY versus 2.04% a decade ago and 1.9% a

decade before. We can divide Egypt

population into three main age brackets, with

60% of population are above the age of 18

years, amounting to 56.9mn, representing the

official smoking market, while the age bracket

for youth from 15 to 18 years, presenting 6%

of population, represents a shadow smoking

possible market. Thus, the real market

exposure span amounts to 66% of the population. Around 34% of the population is children below

the age of 15 years, accounting for 32.4mn. According to Global Youth Tobacco Survey in 2014, 3.3%

of adults (age +15) smoke shisha and 2.6% use smokeless tobacco. Among youth (age 13-15 yrs.),

13.6% use tobacco products (boys 18.1%; girls 8.2%), 4.8% smoke cigarettes (boys 8.3%; girls 0.8%),

and 4.1% use smokeless tobacco (boys 2.7%; girls 5.4%).

Tobacco demand to reach 73.5bn cigarette in 2019f with +3.6% YoY growth

The adults are representing the main demand capacity for cigarettes, but since youth go for smoking

as well in in developing countries, we consider the smoking market exposure span is as wide as 66%

of the total population at 62.3mn (+15 yrs.). The World Bank estimated 21% of adults use tobacco

products in Egypt, where on average each family whether urban or rural spend approximately 5% of

its income on tobacco products – more than spending on medical care, culture, or sports. Thus, we

project the demand for cigarettes at 70.9bn in 2018e and project the demand at 73.5bn cigarettes

(+3.6% YoY growth) in 2019f.

Egypt is seventh cigarette producer globally at 80bn stick per year

The ten largest cigarette producing nations are China, Indonesia, Russia, U.S, Japan, Turkey, Egypt,

Bangladesh, India and Philippines. The five largest cigarettes consuming nations, namely; China,

Indonesia, Russia, USA, and Japan, accounted for 61.7% of the volume of all cigarettes sold in 2017.

Egypt is the seventh largest cigarette markets in the world, where more than 80bn cigarettes are

produced annually. Tobacco growing is banned in Egypt, so the country depends on imports of raw

tobacco, mostly from India, and China, as well as from Brazil, Italy, Syria, and the USA.

Egypt Population Age Brackets in 2017

Source: CAPMAS

60%

6%

34% Above 18 yrs

Range 15 - 18 yrs

Below 15 yrs

5


18 October 2018

Tobacco demand is significantly inelastic to income and price levels

According to The World Bank study, expenditure elasticities indicate that tobacco products are

normal commodities, where income increases will cause tobacco expenditure increases as well.

However, since the income elasticity less than one, changes in income will only have a minute effect

on consumption of cigarettes, whether upward or downward, particularly for urban spending on

tobacco. Similarly, price elasticities of cigarettes are negative and significantly less than one, at an

average of -0.3, meaning that the demand for tobacco is less sensitive to changes in prices. Hence,

increases in tobacco prices will cause slight fall in consumption. However, the higher the income

levels the more responsive it is to price changes than the lower income segment. Although the

Egyptian government imposed new taxes on cigarettes, which led to higher prices, cigarette sales

were not affected, which confirms the stability of this industry and lack of elasticity.

Inelastic cigarettes demand is perfect for government tax exercise

With new taxes imposed, the government revenues will increase accordingly, because the

percentage change in consumption is smaller than the percentage change in product price, since

cigarettes demand is price inelastic. With inelastic commodities, higher tax rates will have a greater

increase in total taxes revenues. Therefore, the government is inclined to impose consecutive tax

increases on cigarettes, as inelastic commodity, to guarantee that the higher taxes will not lead to

significant reduction in consumption and affect the government revenues adversely.

Top Ten Cigarette Markets by Volume Worldwide in 2017

Source: Euromonitor International 2018

2,369

308 259 253 151 106 93 89 81 79

-

500

1,000

1,500

2,000

2,500

Retail Volume (bn sticks)

6


18 October 2018

Egypt targets tax revenues contribution at 78% of total revenues at EGP720bn in FY2019. Tobacco

industry is subject to Value Added Tax (VAT), which is budgeted at EGP320bn and represents 42% of

total tax revenues. According to the statistics of the Tobacco Division of the Federation of Chambers

of Commerce, cigarette taxes are the second source of revenues, following Suez Canal. Cigarette

sales are one of the largest tax sources; the government plans EGP58.5bn of tobacco tax revenues

during FY2019. The government imposed new taxes for funding the comprehensive health insurance

program, which will be implemented during FY2018. The new tax impose EGP0.75 on each pack of

cigarettes sold, whether local or foreign, to increase by EGP0.25 over the coming three years to

reach to EGP1.50, in addition to 10% on each unit sold from tobacco products other than cigarettes.

Tax revenue from cigarettes and tobacco increased over the last five years by 121% to reach

EGP58.5bn in FY2019f, compared to EGP26.4bn in FY2014. Tobacco taxes contribute 7.5% of Egypt’s

total tax revenue at EGP770bn and 18.2% of VAT taxes at EGP320bn during FY2018. Despite the fact

that the annual increase in taxes on this sector is considered a negative variable, the demand for

cigarette products is considered inelastic and still retains strength.

Tobacco international investors eying Egypt

Multinational companies tend to inject more investments in Egyptian market. For example, British

American Tobacco plans to increase its stake in Egypt to 10%, instead of 8% currently, through

increasing production capacity to 10bn cigarette instead of 8bn cigarettes, by injecting GBP30mn

over the next 12 months. Japan Tobacco International (GTI) is considering launching a new product

in Egypt this year in coordination with the Eastern Tobacco Company.

Tobacco Taxes Contribution to Tax Revenues Tobacco Taxes Contribution to VAT

Source: CBE, Ministery of Finance

Other Taxes 92%

Tobacco Taxes

8%

Other VAT

Taxes 82%

Tobacco Taxes 18%

7


18 October 2018

Dependency on raw materials imports, with limited exportation

Tobacco growing is banned in Egypt, thus the country is 100% dependent on raw materials imports

of tobacco paper and 90% imports of smoke paper, mainly from India, China, Brazil, Italy, Syrian Arab

Republic and the USA. Egypt's imports of smoke paper and raw tobacco amounted to EGP990.5mn in

2017, according to Chairman of Tobacco Division in the Federation of Egyptian Chambers of

Commerce. This dependency give exposure to forex risks, albeit the US/EGP exchange rate has been

stable at the level of EGP18, and is expected to increase by 5.5% to EGP19 in 2019 and further up by

marginal 5% to EGP20 in 2020. The Egyptian market is a major consumer of local production,

however small volumes of cigarettes are imported. Cigarettes exportation is minimal and is limited

to regional neighboring countries of Kuwait, Qatar, Saudi Arabia, UAE, in addition to airports free

shops and free zones, as well as targeting Egyptians working aboard in these countries. The limited

exportation is due to major barriers in the Arab countries because of high tariffs and fierce

competition.

8


18 October 2018

Company Overview

Eastern Tobacco Company is a public company, listed on Egyptian Exchange (EGX) since September

1995. Eastern Tobacco is one of the subsidiaries of the Holding Company for Chemical Industries,

where the holding company owns about 55%

of its shares. The company works in the

manufacture and trade of tobacco and its

products, as well as practicing in any

investment activity, financial, commercial or

industrial, owning and building real estate

and land division for the purposes of leasing,

import, export and commercial agencies.

Eastern Company is based in Giza, Egypt and

was established in July 1920. Eastern

company is owned directly by the Holding

Company for Chemical Industries by 55%

controlling stake. The shareholders union of

the Eastern Tobacco Company owns a share

of 6% stake, while free float represents 39%

of the company.

Attractive secondary offering

Egypt is seeking to launch initial and secondary offerings of 23 public companies on the Egyptian

stock exchange during the last quarter of

FY2018 and FY2019 with a total value up to

EGP80bn in the framework of the first phase

of the government privatization program,

aiming to put these companies at a market

value of EGP430bn. The government

offerings launched by five listed companies.

The government offerings will start by

Eastern Company in October 2018, with

4.5% stake of the company; offered from the

Holding Company for Chemical Industries

stake which will decrease to 50.5% after the

offering, from 55% currently.

EAST Current Shareholders Structure

Source: EGX

Shareholders Structure after Secondary Offering

Source: EAST, ALOb Research

55% 39%

6% ChemicalIndustriesHolding

Free Float

ESOP

50.5% 43.5%

6.0% ChemicalIndustriesHolding

Free float

ESOP

9


18 October 2018

The majority stake of Eastern Company will remain within the Holding Company for Chemical

Industries. As a result, the company shifts from Law 203 of the Public Enterprise Sector to Law 159 of

1991, which will allow the new shareholder to be represented in the Board of Directors of the

company. NI Capital has been selected as an advisor to the Eastern Company secondary offering,

while EFG-Hermes is appointed to manage and market the offering. We project a successful

secondary offering for EAST because of the company’s favorable industry position and strong

financial performance. We view international cigarettes producers and financial institutions to eye

the company. The free float will increase to 43.5%, up from 39% currently, where 33% of the current

free float in international institutional funds.

Listing in MSCI Egypt Index & EGX30 adds to the stock attractiveness

The MSCI Egypt Index is designed by Morgan Stanly Institution to measure the performance of the

large and mid-cap segments of the Egyptian market. Currently with three constituents, the index

covers approximately 85% of Egypt equity universe. Eastern Tobacco is listed on the MSCI Egypt

Index with a weight 16% of the total index and is considered the second largest weight after

Commercial International Bank, which accounts for 72% of the total index. This should allure

international institutional investors.

Furthermore, Eastern Tobacco is listed on the EGX30 index as it consists of the top 30 companies in

terms of liquidity, number of trading days and free trading ratios. Eastern Company weight of the

EGX30 was about 9% of the total index and is considered the second largest weight after Commercial

International Bank, which accounts for 29% of the total index weight.

EAST Weight in MSCI Egypt Index EAST Weight in EGX30 Index

Source: MSCI Website Source: EGX Website

72%

16%

12% CommercialInternationalBank

EasternCompanhy

El SewedyElectric

29%

9% 62%

CommercialInternationalBank

EasternCompany

Others

10


18 October 2018

Stock split enhances share liquidity

In August 2018, the EGM approved a stock split by a ratio of 1:5 to reach EGP1.0/share instead of

EGP5.0/share, where the total number of shares is 2.25bn, with a paid-in capital of EGP2.25bn.

Earlier in July 2018, the EGM approved the increase in issued and paid up capital from EGP1.5bn to

EGP2.25bn, an increase of EGP750mn, distributed over 450mn shares at a par value of EGP5.0/share.

The EGM approved in March 2018 a stock split by a ratio of 1:3 to reach EGP5.0/share instead of

EGP15.0/share. The company's capital after the splitting is EGP1.5bn, distributed over 300mn shares,

with a par value of EGP5.0/share. On 29 July 2018, the EGM approved a cash dividend of

EGP10.0/share from the retained earnings and reserves.

Business Operation

Fully-fledged tobacco producer, with supremacy of cigarettes production

Eastern Company produces tobacco products, including cigarettes, cigars, water pipe tobacco

brands, pipe tobacco, Tuscany cigar, and cut rag tobacco. The company's maximum capacity in

cigarettes production is 100bn cigarettes a year and currently produces 63bn cigarettes locally and

23bn through joint manufacturing. The maximum capacity of Moassel is 18k tons and currently

produces around 15-17k tons. The cigar is handmade with a maximum production power at 1.31mn

cigar per year, where total production is sold in full.

Eastern Company Production Portfolio

Cigarettes Price (EGP/Pack)

Moassel Price (EGP/Pack)

Cigar Price (EGP/Pack)

Cleopatra King 15.5 Fares Maasel 100g 10 Cherry 45

Cleopatra Queen Soft 16.0 Saloum Legacion 35

Cleopatra Box (All types) 17 Saloum 80g 5.5 Captin 30

Mondial (Red, Blue) 16.5 Saloum 150g 11 Mezi Tuscany 25

Boston 16.5 Saloum 250g 16.5 Tuscany Special 30

Lite 16.5 Saloum 600g 33 Mediantos 55

Belmont 16.5 Crystal Maasel 100g 16.5 Mediantos Special 200

Cleopatra Box (White) 17 Verona 45

Super 18 Mini Verona 30

Cleopatra Black Label 22 Corona Small 60-70

Golden West 22 Corona Large 850

Corona Duplex 95

Robusto 400

Churchill Tube 150

Source: Eastern company, AOLb Research

11


18 October 2018

Sole cigarettes manufacturer with over 73% market share

The public sector has a dominance on

the cigarette production in Egypt, this

is about to change with the coming

offering. The cigarette market is

dominated by the Eastern Tobacco

Company, which maintains 72%

market share, and is transitioning

from a government monopoly to a

private company. Philip Morris

follows with 22%, and British

American Tobacco (BAT) and Japan

Tobacco International (JTI) hold

collectively 6% of the market share.

EAST brands topping the list of the most popular cigarettes

The products of Eastern Tobacco Company top the list of the most popular cigarette products in

Egypt. Eastern company produces more than 71% of the nine most demanded/favored cigarette

types in Egypt market, because most of the Eastern Tobacco products fit variant income-segments,

including low and middle income levels, which represent the majority of Egyptian society. Also,

Eastern production portfolio offers a wide range of product flavors that attend well to variable

consumer preferences.

Eastern Market Share

Source: EAST, AOLb Research

Market Highest Cigarettes Production & Demand

Type Producer Daily Production (mn cigarettes)

Annual Production (mn cigarettes)

Weight

Cleopatra Queen Eastern Company 120 43,800 44%

Cleopatra Box Eastern Company 60 21,900 22%

LM' Philip Morris 45 16,425 16%

Bal Mal British American Tobacco 15 5,475 5%

Marlboro Phillip Morris 12 4,380 4%

Cleopatra Super Eastern Company 11 4,015 4%

Winston Japan Tobacco International 5 1,825 2%

Vesseroy Eastern Company & British American Tobacco

3 1,095 1%

Rothman British American Tobacco 2 730 1%

Total 273 99,645 100%

Source: Al Mal Newspaper, AOLb Research

Eastern Company

72%

Philip Morris

22%

BAT & JTI 6%

12


18 October 2018

Resilient demand despite shifting hefty taxes to consumer prices

In November 2017, the Parliament decided to amend the VAT law No. 67 for 2017, to increase in the

taxes on tobacco and its products from cigarettes and moassel, and the expansion of the tax

brackets for the sale of cigarettes. Cigarette taxes are divided into three price brackets, with the first

bracket for price up to EGP18; the second bracket is between EGP18 and EGP30; and the third for

price over EGP30. In response to amendments to the VAT Law and the new Health Insurance Law,

Eastern Tobacco shifted the higher taxes fully to consumer prices of cigarettes and moassel,

depending on inelastic demand to price increases.

Despite the consecutive dramatic increases in prices and taxes in the past years, cigarette sales

continued to grow, reaching 87.5bn cigarettes per year. We expect Eastern Company cigarettes sales

to continue to grow in the coming period, even after the government imposed higher tax rates.

Higher Taxes Effect on Cigarettes Prices

Type Price before Increase (EGP/Pack) Price after Increase (EGP/Pack) % Increase

Cleopatra King Size 14.0 15.5 14%

Cleopatra Queen Soft 14.5 16.0 10%

Lite 15.0 16.5 10%

Boston 15.0 16.5 10%

Mondial 15.0 16.5 10%

Belmont 15.0 16.5 10%

Cleopatra Box all types 15.5 17.0 10%

Cleopatra Box (white) 15.5 17.0 10%

Cleopatra Super 17.0 18.0 6%

Golden West 17.0 22.0 29%

Cleopatra Black label 19.0 22.0 16%


EAST Sales Growth vs. Tax Increases


19.2 26.2

33.2 42.3

54.5

6.1 7.0 7.7 10.5 13.4

0

20

40

60

FY2014 FY2015 FY2016 FY2017 FY2018

EGP bn

VAT Taxes Eastern Company Sales

13


18 October 2018

Production utilization rates on the rise for cigarettes, albeit down for moassel

Cigarettes total utilization rate recorded 86% in FY2018 and is expected to decline slightly to 85%,

primarily due to a slight decline in exports and production for others, but only to exhibit an upward

thereafter at 86% in FY2020 and 89% in FY2021. On the other hand, moassel utilization rate is

exhibiting a downward trend since FY2016, due to the entry of new competitors into the market, and

in addition to the imitation and fraud that occurred in the Egyptian market, with expectation of the

same pattern to prevail in coming years with utilization rate at 86% in FY2019, down from 89% in

FY2018. As for cigar utilization rate, Eastern Company produces at full capacity at a small volume of

1.31mn cigar, sold fully in the local market, where most cigar consumers prefer imported cigars.

Products mix fit all income segments in Egypt Eastern company market share is between 71% and 72% of the cigarette market in Egypt, satisfying

all the preference for variable income-segment levels. EAST first segment, which is up to EGP18/pack

is the most resilient market target and with the highest in demand, supplied with five major

inexpensive brands, albeit EAST serves soundly middle- and upper- income segments as well, with a

range of 13 brands variety over the price of EGP18/pack, that is supplied through the products

manufactured in partnership with the international companies, which adds to the company’s

strength.

Cigarette is the main product and Egypt is the final destination EAST is mainly a cigarettes producer, where cigarettes sales is considered the main source of

revenue, which representing about 97% of total sales, and the remaining is generated from moassel

& cigar. On the level markets, Egypt is the prominent market for EAST products, where local sales

account for around 82% of total sales, out of which local cigarettes sales represents 80% of total

sales in FY2018. Local cigarettes sales are the highest revenue contributor among all products,

whereas the remaining is generated from operating for other and minimal contribution from

exports.

EAST Products Mix by Targeted Income-Segment

Up to EGP18 EGP18 - EGP30 Over EGP30

Cleopatra Queen Soft LM Kent Cleopatra King Rothman Marlboro Box Lucky Strike Danhill Mondial Next Merit Target Bal Mall Camel Vesseroy Cleopatra Black Label Time


14


18 October 2018

Strategic cooperation with international companies yields higher than average profit margin

Around 25.5% of Eastern Company production is through strategic cooperation with international

companies like, “Philip Morris”, “JTI”, “BAT” & “AL Mansour International”. The type of cooperation

is divided into operating to others and joint manufacturing. For the segment of operating for others,

the cooperation contract stipulates that the raw materials should be fully on the international

companies, while EAST contributes with the manufacturing only at fees of USD5.8/1000 cigarettes

up to 15bn cigarettes for Philip Morris and at USD6.5/1000 for amounts exceeding 15bn cigarettes.

The same terms apply for the contracts with British American Tobacco and Japan Tobacco

International, but n amount of 15bn cigarettes annually. The fees are paid in Egyptian pounds for

Philip Morris contract, while paid in US dollar for British American Tobacco and Japan Tobacco

International. The operating for others render a profit margin of 50% - 60%, which is much higher

than the company’s average GPM at 39% in FY2018. The segment of joint manufacturing contract

stipulates halving the costs and profits, participating at 1% of EAST total annual production.

Currently, Precious, JTI, and Al Mansour are EAST main joint producers.

The segment of operating for others and joint manufacturing utilization rate was 22% at a

production level of 22bn cigarettes in FY2018 and is expected to decline slightly to 21% at a

production of 21bn cigarettes in FY2019. This segment contributed EGP2.3bn of revenues (17%

weight of total revenue) in FY2018, compared to expected revenue of EGP2.26bn (14% weight of

total revenue) in FY2019. Our projected decline is due to the fact that the consumer constrained

budget will shift the demand from high-price tobacco foreign brands to low-priced local cigarettes.

Revenues Breakdown by Product Revenues Breakdown by Segment

Source: EAST, AOLb Research Source: EAST, AOLb Research

97%

3% 0%

Cigarettes

Moassel

Cigar

82%

17% 1%

Local sales

Operating toOthers

Exports sales

15


18 October 2018

EAST alliances are as follow:

“Philip Morris” produces three brands locally, namely; Marlboro, Merit, and Next.

“British American Tobacco” produces five brands locally, namely; Kent, Lucky Strike,

Vesseroy, Bal Mal, and Rothman.

“Japan Tobacco International” signed recently a joint manufacturing contract to manufacture

new brand Named “LD”.

“Al Mansour International Distribution”, which is an agent of Imperial Tobacco International,

signed recently a joint manufacturing contract to manufacture new brand named “West”.

Exports slipping due to political instability and imitation of products

Eastern Company Exports tobacco products, including cigarettes & moassel, to different countries in

all continents of the world, namely; African Countries as Malawi and Madagascar; Arab Countries as

Kuwait, Qatar, Lebanon, Bahrain, Jordan, Saudi Arabia, Emirates, Libya, and Iraq; European Countries

as Germany and Austria; Asian countries as Malaysia, Japan, Thailand; in addition to USA, Canada,

and Duty-free Shops. Cigarettes exports accounted for 11% of total EAST exports in FY2018, while

moassel contributes around 89% to total exports. EAST exports accounts for only 1% of total EAST

revenues and we project further decline in exports contribution over our forecast period.

However exports are very small in volumes did not exceed 113k cigarette in FY2018, and went down

to 44k cigarette in FY2018, and is expected to go further down to 30k in FY2019. As for moassel

exports, the mount shrank to 1.6k tons in FY2017, sliding to 1,000 ton in FY2018, and expected to slip

further to 720 tons in FY2019. The company exports of cigarettes and moassel were negatively

affected during last period due to is the political violence in a number of neighboring Arab countries,

especially in Libya that was the largest market for EAST exports. Also, mitigating export restraint is

the imitation and fraud of EAST brands.

16


18 October 2018

Financial Analysis & Forecasts

Revenue to grow by 19.5%% driven by high cigarettes demand

Eastern company recorded revenue of EGP13.4bn in FY2018 and we project total revenues to record

EGP16bn in FY2019, with 19.5% YoY growth, sustained by population growth rate. Cigarettes sales is

the highest revenue contributor, at 98% and is projected to record EGP15.6bn (+20% YoY growth) in

FY2019f, while moassel revenue is expected at EGP382mn (+1% YoY growth, 2% weight of total

revenues) in FY2019, whereas cigar contribution is minimal at EGP2.3mn (+5% growth YoY). Our

projections puts into consideration that constrained budget by consumers will affect the consuming

pattern, where consumer will be inclined to low-priced brands of EAST vs. high-end brands. Thus, we

except demand growth to be sustained but at diminishing rate for the coming couple of years. We

project FY2019f-23f revenue CAGR of 22%, up from 21% over the 5-year historical.

Eastern Company is a cash-based industry and there are no credit sales. This means that EAST

operations render revenues timely, which is strength in the company’s financial position, particularly

in times of stagnation as projected in FY2019f.

EAST Revenues Breakdown

Source: EAST, AOLb Estimates

10.5 13.4

16.0 18.9

23.1

38%

27%

20% 18% 22%

0%

10%

20%

30%

40%

50%

0.0

5.0

10.0

15.0

20.0

25.0

FY2017 FY2018 FY2019f FY2019f FY2019f

Total Revenues (EGP bn) Growth Rate

10.2 13.0

15.6 18.5

22.7

39%

28%

20% 18% 23%

0%

10%

20%

30%

40%

50%

0.0

5.0

10.0

15.0

20.0

25.0

FY2017 FY2018 FY2019f FY2019f FY2019f

Cigarettes (EGP bn) Growth Rate

366.2 377.4 382.1 418.0

457.4 23%

3% 1%

9% 9%

0%

5%

10%

15%

20%

25%

0.0

100.0

200.0

300.0

400.0

500.0

FY2017 FY2018 FY2019f FY2019f FY2019f

Moassel (EGP mn) Growth Rate

1.5

2.2 2.3 2.4

2.7

-45%

45%

5% 7% 9%

-60%

-40%

-20%

0%

20%

40%

60%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

FY2017 FY2018 FY2019fFY2019fFY2019f

Cigar (EGP mn) Growth Rate

17


18 October 2018

Higher demand for cigarettes, while moassel declining and cigar stable

Local cigarettes sales volume is exhibiting an upward trend to 64bn cigarettes, supported by high

demand on the company’s affordable brands in comparison to foreign brands. On the other hand,

local moassel sales volume is displaying a retreat in trend to 15k ton in FY2018, due to new

competitors, as well as imitation and fraud of EAST brands in the Egyptian market. As for cigar sales

volume, EAST produces at full capacity at a small volume of 1.31mn cigar, sold fully in the local

market, where most cigar consumers prefer imported cigar. We expect this trend to prevail

throughout our forecast period. In FY2019 we expect cigarettes sales exhibit growth, while moassel

and cigar sales will be stable.

EAST Local Sales Breakdown

Total Local Sales Value (EGP bn) Cigarettes Sales Volume (bn cigarettes)

Moassel Sales Volume (k ton) Cigar Sales Volume (mn cigar)


6.2 8.2

11.0 13.7

16.4

20.6

0.0

5.0

10.0

15.0

20.0

25.0

FY2016 FY2017 FY2018 FY2019 FY2020 FY2021

59

62

64 64 64

67

54

56

58

60

62

64

66

68

FY2016 FY2017 FY2018 FY2019 FY2020 FY2021

16

15 15 14.8 14.8 14.8

14

14.5

15

15.5

16

16.5

FY2016 FY2017 FY2018 FY2019 FY2020 FY2021

1,102

1,310 1,316 1,316 1,316 1,316

900

1,000

1,100

1,200

1,300

1,400

FY2016FY2017FY2018FY2019FY2020FY2021

18


18 October 2018

Gross Profit firms at 20% growth, with GMP solid above 38% level to increase thereafter

In FY2019f, we forecast EAST gross profit to record EGP6.1bn, 20% YoY growth, with GPM slight

contraction to 38.1%, down from 39% in FY2018, attributable to 20% increase in operating costs

attributable to higher import raw materials costs by 23%, weighing 74% of total operating costs.

Tobacco industry is relatively a labor intensive where wages is the second highest cost burden in the

operations cost and comprise more than 20% total operating costs. We foresee wages increases at a

regular salary increase of 15% in FY2019e, weighing 19% of total operating costs. Eastern company

recorded cost of goods sold EGP8.2bn in FY2018, with an increase of 29% YoY, and is expected to

incur costs of EGP9.9bn in FY2019.

The company depends on providing 100% imported raw materials, where the purchase price of

tobacco paper ranges from USD5k/ton to USD5.5k/ton, as well as 90% imports of smoking paper,

which puts pressure on the company specifically in case of devaluation of the Egyptian pound.

However, the exchange rate has exhibited a relative stability in 2018 and only to increase marginally

in the coming couple of years by 5.5% to EGP19 in 2019.

Net profit minor contraction in FY2019f, to improve starting FY2020f

AOLB forecasts EAST’s net profit to contract to EGP3.8bn in FY2019f, 9.5% YoY decline, down from

EGP4.2bn in FY2018 with 42% YoY growth, but NP to increase to EGP4.9bn in FY2020, with 30% YoY

growth. The decline is attributable to that EAST has a time deposit equal to USD750mn, which was

revalued after devaluation and was the main reason for boost the net income during FY2018 to

record interest income of EGP873.5mn in FY2018, with an increase by 61%YoY, compared to

EGP543.8mn in FY2017. In FY2019f, we project that the net income to retreat compared to FY2018,

because the company has liquidated this deposit and use the proceeds to import row material.

Gross Profit & GPM Operating Costs Breakdown in FY2018

Source: EAST, AOLB Estimates

4.1 5.2

6.1

7.6

10.2

39% 39% 38.1%

40%

44%

34%

36%

38%

40%

42%

44%

46%

0.0

2.0

4.0

6.0

8.0

10.0

12.0

FY2017 FY2018 FY2019f FY2020f FY2021f

Gross Profit (EGP bn) GPM

72%

20%

5% 3%

Raw Materials

Depreciation andAmortization

Wages

Others

19


18 October 2018

The NP margin is projected to

contract to 23.9%, down from 32%

in FY2018, noting that FY2018

recorded an exceptional results

due to the US deposit revaluation.

We forecast net profit slight

contraction due to higher SGA cost,

forex losses, and lower investment

income. We except strong

performance for EAST profitability

starting FY2020, with an average

NPM at 29% over our 5-year

forecast period, compared with 5-

year historical of 22%, with

FY2019f-23f NP CAGR of 32%.

Attractive cash balance with null debt

EAST has a strong cash position at a balance of EGP3.8bn as of end of FY2018m, with null debt

burden, totally free of both for short and long-term loans. However, EAST has a lease financing

commitment of EGP398.3mn with rent expense of EGP8.6mn over 72 months and interest expense

of at a corridor rate +1.2%. The lease financing is over six-year term with 2-year grace period,

starting from FY2012 and ending in FY2020f. The remaining installments are EGP1.03.2mn in FY2019f

and FY2020f each. Also, EAST focuses on replacing and upgrading the production lines continuously,

expecting to receive eight new production lines from Germany in FY2019f with total capital

expenditure of EUR15mn (EGP314mn), as part of its expansion plan to double production and meet

the needs of the local market increasing, as part of total budgeted CAPEX of EGP1.25bn in FY2019f .

Net Profit & Net Profit Margin


3.0

4.2 3.8

5.0

6.8

28% 32%

23.9% 26%

29%

0%

5%

10%

15%

20%

25%

30%

35%

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

FY2017 FY2018 FY2019f FY2020f FY2021f

Net Profit (EGP bn) NPM

20


18 October 2018

Valuation

We valued EAST with a combined 5-year DCF valuation and NAV for the company’s land bank that

indicated a fair value of EGP23.5/share, a +48% upside potential. Our DCF valuation yields a FV of

EGP22.0/share and it is based on five years of explicit forecasts and a terminal value using a 3% long-

term growth rate. EAST is 100% equity financing at a WACC of 21.2%. We use our adjusted calculated

beta at 0.4, since the company’s beta is below 1.0.

The Net Asset Value of EAST land bank, at a total six land plots in Giza and Alexandria of 157.2k sqm,

yields EGP1.5/share, added to the company’s FV.

EAST forward 2019f P/E is at 9.3x at par with the EGX Personal and Households Products Sector P/E

at 9.43x. EAST forward P/E multiple valuation gives a FV of EGP16.0/share, with FY2019f EPS at

EGP1.7/share. We don’t see the P/E multiple valuation is representative of the company’s real

potential and industry stance, since the sector has a wide range of companies with variability in

business natures, where the position and performance of EAST tops other companies in the sector.

EAST has an average dividends payout ratio of 40%, with projected dividend yield 5.3% for FY2019f.

We forecast the payout ratio throughout the projection period at an average of 40%. Dividend yield

was 5.2% in FY2018 with a payout ratio of 39.8%, the EGX sector average DY is at 8.67%. We project

2019f-22f DPS CAGR is at 26%.

EAST DCF Valuation

(EGP thousands) FY2019f FY2020f FY2021f FY2022f FY2023f

NOPLAT 3,451,739 4,474,256 6,122,984 8,105,388 10,438,626 Gross CF 4,031,809 5,150,639 6,838,476 8,862,473 11,239,966 FCF 4,367,034 4,669,313 6,232,520 8,248,760 10,638,327 Terminal Value 54,069,178 DCF 4,217,998 3,721,090 4,098,059 4,475,078 28,964,363 NPV of FCF 45,476,588 Cash 3,869,669 Investments/Associates 129,971 Less Debts -- Less Minority Interests -- Company Value 49,476,228 DCF FV/share (EGP/share) 22.0 NAV/share (EGP/share) 1.5 Combined FV/share (EGP/share) 23.5 Potential 48%

Source: EAST, AOLb Projections

21


18 October 2018

Assumptions for Calculation of WACC (%)

Symbol Assumptions

Risk-free Rate of Return Rf 18.4%

Long-term Cost of Debt Kd 0.0%

Equity Risk Premium Rp 7.0%

Beta B 0.40

Effective Tax Rate t 25.1%

Weight of Debt Wd 0.0%

Weight of Equity We 100%

Cost of Equity Ke 21.2%

WACC Dr 21.2%

Source: EAST, CBE, AOLb calculations

22


18 October 2018

F IN A N C IA L ST A T EM EN T S P ER F OR M A N C E R A T IOS

Year to 30 Jun 2017 2018 2019 2020 2021 Year to 30 Jun 2017 2018 2019 2020 2021

Inco me statement (EGP m) Gro wth and margins

R evenue 10,541,017 13,410,944 16,027,922 18,918,866 23,146,208 Revenue growth (%) 38.1 27.2 19.5 18.0 22.3

Cost o f goods so ld (6,024,715) (7,829,817) (9,430,859) (10,703,302) (12,324,247) EBITDA growth (%) 71.7 21.6 16.2 25.2 33.0

Other operating expenses (473,130) (663,709) (882,200) (1,058,108) (1,302,540) EBIT growth (%) 83.6 23.1 15.9 25.9 35.4

EB IT D A 4,043,172 4,917,418 5,714,863 7,157,456 9,519,420 Pre-tax growth (%) 100.6 39.4 (8.0) 30.9 37.7

Depreciation/amortization (376,434) (403,808) (483,894) (570,589) (599,119) Reported net profit growth (%) 101.8 42.4 (9.8) 29.6 36.4

EB IT 3,666,738 4,513,610 # # # # # # 6,586,867 8,920,302 EBITDA margin (%) 38.4 36.7 35.7 37.8 41.1

Net interest income/(expense) 504,105 863,830 190,739 376,528 626,476 EBIT margin (%) 34.8 33.7 32.6 34.8 38.5

Associates 0 0 0 0 0 Pre-tax margin (%) 37.6 41.1 31.7 35.1 39.5

Other income/(expense) 154,057 14,247 39,395 49,723 65,334 Net margin (%) 28.3 31.6 23.9 26.2 29.2

Exceptional items (net o f tax) (366,657) 124,460 (384,661) (367,178) (462,282) Effective tax rate (%) 26.7 23.1 24.7 25.4 26.1

P re-tax pro f it 3 ,958,243 5,516,147 5,076,441 6,645,940 9,149,831 Liquidity

Tax (979,817) (1,275,549) (1,252,724) (1,689,491) (2,387,618) Capex/depreciation (x) 1.1 2.2 1.5 0.8 1.0

M inority interest 0 0 0 0 0 Current ratio (x) 1.7 1.8 1.5 1.6 1.8

Preference dividends 0 0 0 0 0 Quick ratio (x) 1.1 0.8 0.6 0.7 1.0

R epo rted net pro f it 2 ,978,426 4,240,598 3,823,717 4,956,449 6,762,213 Working capital/revenue (%) 29.3 41.8 41.5 40.1 38.0

Dividends 1,360,885 2,041,112 2,190,963 2,519,714 3,254,587 Receivable days 13.0 15.5 13.2 13.9 13.6

Adjustments (one-off) 23,857 10,638 0 0 0 Inventory days 210.4 242.4 279.8 293.5 291.5

R etained earnings 4,363,168 6,292,348 6,014,680 7,476,163 10,016,800 Payable days 62.8 66.3 64.9 75.2 74.7

R estated net pro f it : Cash operating cycle (days) 161 192 228 232 230

Recurrent net profit (excl. excep & adjs)2,954,569 4,229,960 3,823,717 4,956,449 6,762,213 R isk measures

Fully-diluted net profit 2,954,569 4,229,960 3,823,717 4,956,449 6,762,213 Dividend cover (x) (2.2) (2.1) (1.7) (2.0) (2.1)

Payout ratio (%) (45.7) (48.1) (57.3) (50.8) (48.1)

C ashflo w (EGP m) Net interest cover (x) nm nm nm nm nm

P re-tax pro f it 3 ,958,243 5,516,147 5,076,441 6,645,940 9,149,831 Net debt/equity (incl M I) (%) nm nm nm nm nm

- associates' profits 0 0 0 0 0 Net debt/equity (excl M I) (%) nm nm nm nm nm

+ associates' dividends 0 0 0 0 0 R eturns

+ depreciation/amortization 376,434 403,808 483,894 570,589 599,119 Return on avg cap employed (%) 21.1 22.3 26.7 30.3 31.0

- tax paid (979,817) (1,275,549) (1,252,724) (1,689,491) (2,387,618) WACC (%) 21.2 21.2 21.2 21.2 21.2

+ increase (-decrease) in provisions 457,983 (26,155) 480,838 472,972 578,655 Return on avg equity (excl M I) (%) 19.5 23.7 22.8 27.6 28.3

- (profit)/+loss on disposal o f FAs 0 0 0 0 0 Company cost o f equity (%) 21.2 21.2 21.2 21.2 21.2

+/- o thers 1 2 3 4 5

Gro ss cash f lo w 3,812,844 4,618,253 # # # # # # 6,000,014 7,939,991 SH A R E D A T A / VA LUA T ION

- capital expenditure (396,788) (890,930) (727,379) (483,894) (570,589) Share data

(Incr)/decr in working capital 1,966,290 (2,890,163) 1,062,603 2,569 (35,366) Issued shares (m) 300.0 300.0 2,250.0 2,250.0 2,250.0

F ree cash f lo w 5,382,346 837,160 5,123,676 5,518,688 7,334,036 Weighted avg shares (m) 300.0 300.0 2,250.0 2,250.0 2,250.0

Other inflows/ (outflows): Fully diluted shares (m) 300.0 300.0 2,250.0 2,250.0 2,250.0

- acq of subsids/other investments 0 0 0 0 0 Basic EPS - weighted avg (EGP) 9.93 14.14 1.70 2.20 3.01

+/- minority interests 0 0 0 0 0 YoY change (%) (97.0) 42.4 (88.0) 29.6 36.4

- dividends paid (1,341,213) (2,013,584) (2,157,755) (2,485,019) (3,207,252) Fully diluted EPS (EGP) 1.32 1.88 1.70 2.20 3.01

+ proceeds from share issues 750,000 0 750,000 0 0 YoY change (%) (99.6) 42.4 (9.8) 29.6 36.4

+ proceeds from disp of FA/subsids 0 0 0 0 0 Recurring EPS - weighted avg (EGP) 1.31 1.88 1.70 2.20 3.01

+/- o thers 461,211 (2,062,079) (3,606,144) (15,063) (4,006) YoY change (%) (78.0) 43.2 (9.6) 29.6 36.4

N et cash f lo w 5,252,344 # # # # # # # 109,777 3,018,606 4,122,778 Gross DPS (EGP) 0.51 0.80 0.84 0.97 1.25

CFPS (EGP) 12.71 15.39 2.13 2.67 3.53

N et cash/ (debt) start 1,746,051 6,998,395 # # # # # # 3,869,669 6,888,275 NBV/share (EGP) 29.67 29.97 3.45 4.54 6.10

N et cash / (debt) end 6,998,395 3,759,892 # # # # # # 6,888,275 11,011,053 Valuat io n

PER (Basic) (x) 1.5 1.1 9.4 7.3 5.3

B alance sheet (EGP m) PER (FD) (x) 11.6 8.1 9.4 7.3 5.3

Fixed assets 9,011,422 9,435,139 9,895,991 11,629,885 12,200,474 PER (Recurrent) (x) 11.7 8.2 9.4 7.3 5.3

Depreciation (4,163,280) (4,612,879) (5,096,773) (5,667,362) (6,266,481) P/CFPS (x) 1.2 1.0 7.5 6.0 4.5

N et f ixed assets 4,848,142 4,822,260 4,799,217 5,962,523 5,933,993 Price/Book value (x) 0.5 0.5 4.6 3.5 2.6

Long-term investments 129,971 129,971 129,971 129,971 129,971 Dividend yield (%) 3.3 5.2 5.3 6.1 7.8

Intangible assets 9,807 6,917 6,917 6,917 6,917 Basic EPS Cagr 2019-2021 (%) nm G-PE (Basix) (x) nm

Lo ng-term assets 4,987,920 4,959,148 4,936,105 6,099,411 6,070,881 FD EPS Cagr 2019-2021 (%) 16.8 G-PE (FD) (x) 1.79

C urrent assets Recurrent EPS Cagr 2019-2021 (%) 16.9G-PE (Recurrrent) (x) 1.80

Cash & cash equivalents 7,226,669 3,759,892 3,869,669 6,888,275 11,011,053 EV/EBITDA (x) 8.0 6.6 5.6 4.5 3.4

Receivables 644,287 497,426 658,682 777,488 951,214 EV/EBIT (x) 8.8 7.1 6.2 4.9 3.6

Inventory 4,003,170 6,397,306 8,061,705 9,149,417 10,535,037 EV/revenue (x) 3.1 2.4 2.0 1.7 1.4

Other non-cash assets 1,038,468 1,302,038 1,790,748 632,646 763,874 M arket cap/revenue (x) 3.3 2.6 2.2 1.8 1.5

T o tal current assets 12,912,594 11,956,662 # # # # # # 17,447,826 23,261,177 Earnings yield (%) 0.6 0.9 0.1 0.1 0.2

C urrent liabilit ies

Current borrowings 228,274 0 0 0 0 PR OGR ESSIV E QU A R TER LY R ESU LTS SN A PSHOT FOR C U R R EN T Y EA R :FY 2 0 19

Payables 1,557,444 1,288,636 2,067,038 2,345,929 2,701,205 Qtly inco me statement (EGP m) 1Q 2Q 1H 3Q 9-mths

Other current liabilities 6,000,756 5,459,928 7,822,759 8,864,488 10,207,753 Turnover nm nm nm nm nm

N et current assets/ ( liabilit ies)5,126,120 5,208,098 4,491,008 6,237,409 10,352,219 Operating profit nm nm nm nm nm

N et assets 10,114,040 10,167,246 9,427,113 12,336,820 16,423,101 Reported net profit nm nm nm nm nm

Lo ng-term liabilit ies Basic EPS nm nm nm nm nm

Long-term debt 0 0 0 0 0 YoY Growth (%) nm nm nm nm nm

Other LT liabilities 1,213,229 1,175,451 1,656,289 2,129,260 2,707,915

T o tal LT liabilit ies 1,213,229 1,175,451 1,656,289 2,129,260 2,707,915 OT H ER IN F OR M A T ION

Issued share capital 1,500,000 1,500,000 2,250,000 2,250,000 2,250,000 Top two major shareholders: 12-mth High/Low: EGP30.13-13.38

Reserves (incl prefs, t/stock etc) 3,745,257 2,967,760 5,021,096 7,682,709 11,314,017 1) Chemical Industries Holding Avg daily vo l (000): 849.8

Retained earnings 3,655,554 4,524,035 499,729 274,851 151,168 2) Union Workers Shareholders Latest results: 4QFY2018

Shareho lders' funds 8,900,811 8,991,795 # # # # # # 10,207,560 13,715,185 Free float: 39% Next results: 1QFY2019

M inority interests 0 0 0 0 0 Reuters code: EAST.CA M ajor business: Tobacco Producer

C apital emplo yed 10,114,040 10,167,246 9,427,113 12,336,820 16,423,101 SOUR C ES: A OLb R esearch, C o mpany data

23


18 October 2018

Recommendation Rating

BUY HOLD SELL Above 15% From 5% - 15% Below 5%

Disclaimer

This report is based on publicly available information. It is not intended as an offer to buy or

sell, nor is it a solicitation of an offer to buy or sell the securities mentioned. The

information and opinions in this report were prepared by the AOLB Research Department

from sources it believed to be reliable at the time of publication. AOLB accepts no liability

or legal responsibility for losses or damages incurred from the use of this publication or its

contents. AOLB has the right to change opinions expressed in this report without prior

notice.

24


18 October 2018

Research Department

Sally Fawzy Mikhail

Head of Research

[email protected]

Mostafa Shafie Amal Nada Alaa Ahmed

Equity Analyst Equity Analyst Equity Analyst

[email protected] [email protected] [email protected]

Micheal Armia

Head of Technical Analysis

[email protected]

Omar Hussein Reham Aboul Atta

Head of Retail Trading Head of Institutions desk

[email protected] [email protected]

Moataz Ashmawy Laila Tarek El Ghawass

Managing Director Managing Director - Branches

[email protected] [email protected]

Commercial Website: www.arabeyaonline.com

Trading Website: www.aolbeg.com

For more info, kindly contact us on our hotline 16225









http://www.arabeyaonline.com/

http://www.aolbeg.com/

Documents

Eastern Tobacco Company (EAST.CA) - Arabeya Online · Bangladesh, India and Philippines. The five largest cigarettes consuming nations, namely; China, Indonesia, Russia, USA, and