EGYPTIAN TRANSPORT & INITIATION OF COVERAGE …ir.egytrans.com/pdf/CI Capital Research.pdf · The Egyptian Transport and Commercial Services Company (Egytrans) ... Egytrans’ revenues,

EGYPT | TRANSPORT & LOGISTICS

25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E

Please Read Last Page for Contact Details and Important Disclaimer

EGYPTIAN TRANSPORT & COMMERCIAL SERVICES

(EGYTRANS)

“A MODERN STYLE ALONG THE RIVER NILE…”


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


Table of Contents

I. Evaluation

II. Maritime Transport & Logistics Industry

A. Market Developments

B. Market Dynamics

C. SWOT Analysis

D. Future Outlook

III. River Transport & Logistics Industry

A. Market Structure

B. Market Developments

C. Market Dynamics

D. SWOT Analysis

E. Future Outlook

IV. Egytrans Profile

A. Background & Structure

B. Strategy

C. Key Projects

V. Operational & Financial Analysis

A. Operational Analysis

B. Financial Analysis

C. 1Q10 Results Highlights

VI. Projection Assumptions & Growth Drivers

VII. Valuation & Recommendation

A. DCF Valuation

B. Multiples Valuation

C. Technical Analysis

D. Target Price & Recommendation

VIII. Catalysts & Risks to Recommendation

IX. Glossary of Terms

X. Financial Statements

4

7

7

10

14

15

16

16

18

20

23

24

25

25

26

27

28

28

29

31

32

35

35

35

36

37

38

39

40


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


Egytrans A MODERN STYLE ALONG THE RIVER NILE… Egytrans [ETRS] has been a pioneer in the Egyptian Transport & Logistics sector since 1973, featuring a robust business model capable of serving nearly any of its clients’ potential needs. In early 2010, the company nearly tripled its capital as part of its EGP530mn capex plan to expand and diversify into the high-margin Land and River Transport businesses. Once these new Lines of Business (LoB) are fully operational, Egytrans’ profits and margins will increase significantly, starting in 2012. As a result, we believe the company’s earnings are on the cusp of a possible 4x growth. Our DCF valuation yielded a LTFV of EGP20.8 with 53% upside potential. While Egytrans is currently traded at 2010 forecasted PER of 14.5x (vs. 22.8x for its global peers), if it achieves this projected growth, the stock is traded at a 2012 forecasted PER of 4.7x. We reached a TP of EGP23.4, implying 72% upside potential from current market price. Since we expect the stock to rally as it rides the coming wave of growth, we initiate coverage on Egytrans with a Strong Buy recommendation and High Risk rating.

Resilience during the economic crisis: Egytrans’ strong fundamentals allowed it to maintain growth amid the global economic crisis. Revenues increased 3% year-on-year (YoY), whilst bottom line grew 4.2%.

Diversification with high-margin LoB: The introduction of the new Land and River Transport LoB should significantly expand Egytrans’ EBITDA margin (from 5.7% in 2009 to 23.2% by 2012). Margins should further expand as the transport capacity (its fleet of barges and trucks) continues to grow.

Potential lies in river transport: The Government of Egypt’s (GoE) plan to offer 6 new river ports over the coming 2-4 years should boost river transport potential. River transport is currently an underpenetrated segment, accounting for a minimal share of less than 1% of total goods transferred to and from Egypt (vs. an average 11% for leading river transport countries).

Valuation and recommendation: Given the strong potential for Egytrans’ business over the next five years (and beyond), we have reached a LTFV of EGP20.8/share using the DCF valuation method. The company’s anticipated strong fundamentals coupled with the stock’s speculative nature led us to reach a TP of EGP23.4/share, implying a 72% upside potential. We therefore initiate coverage on the stock with a Strong Buy recommendation and a High Risk.

Revenues 195.5 201.5 207.5 236.3 302.6Growth rate 3.0% 3.0% 13.9% 28.0%

EBITDA 8.3 11.5 12.1 27.2 70.1Growth rate 37.9% 5.4% 124.1% 158.3%EBITDA margin 4.3% 5.7% 5.8% 11.5% 23.2%Net income 11.0 11.4 14.6 14.0 45.2Growth rate 4.2% 27.6% -4.2% 223.3%Net margin 5.6% 5.7% 7.0% 5.9% 14.9%PER 6.9x 6.7x 14.5x 15.2x 4.7xP/BV 1.1x 1.1x 1.2x 0.7x 0.6xEV/EBITDA 13.4x 9.4x 18.7x 13.8x 5.4xNet debt/EBITDA 4.2x 2.7x 1.2x 6.0x 2.4xDividend yield 0.0% 14.7% 0.0% 0.0% 0.0%

EGPmn Year-end December 2008 A 2009 A 2010 F 2011 F 2012 F

Source: ETRS and CICR forecasts

SHERIF HELMY [email protected]

MAYAN EL-MENSHAWY

[email protected]

STRONG BUY | HIGH RISK LTFV | EGP20.8

TP | EGP23.4

COMPANY SYNOPSIS The Egyptian Transport and Commercial Services Company (Egytrans) was established in December 1973 under Egypt’s open door policy with regard to private enterprises. However, its transport activities and experience date back to 1939 and Gamal El-Din Leheta & Co. After Egytrans was nationalized in 1964 it was one of the biggest companies in Egypt, offering shipping agency, tourism agency and other transport services.

In early 2010, the company succeeded in raising its authorized and paid in capital from EGP100mn and EGP56.1mn to EGP1bn and EGP256.1mn. So far, the company called only EGP100mn from this increase.

The company will use the capital increase proceeds to expand and develop its current activities in addition to entering the new Land & River Transport & Logistics field through operating river ports, terminals and a river transport business.

SHAREHOLDERS' STRUCTURE Leheta Family 16.8%National Investment Bank 24.0%Free Float 59.2%Total 100.0%

STOCK DATA Reuters; Bloomberg ETRS.CA; ETRS EYRecent price as of 24-May-10 EGP13.60No. of O/S shares 15.6mnMarket cap EGP212.2mn52-wk high / low EGP32.01/ EGP13Avg. daily volume / turnover 0.22mn / EGP5.11mn

STOCK PERFORMANCE | 52 WEEKS

-

0.2

0.4

0.6

0.8

1.0

1.2

0

5

10

15

20

25

30

35

May

-09

Jul-0

9

Aug

-09

Oct

-09

Nov

-09

Dec

-09

Feb-

10

Mar

-10

May

-10

mn sharesEGP

Volume ETRS EGX30 - rebased

Source: Bloomberg


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


4

I. Evaluation Egytrans [ETRS] has been a pioneer in the Transport & Logistics sector since its

establishment in 1973. The company’s business model serves a wide variety of clients through its affiliates and subsidiaries, with each of its LoB holding a considerable market share. In early 2010, Egytrans succeeded in increasing its authorized and paid-in capital to EGP1bn and EGP256.1mn, respectively. Of this, EGP100mn was called as a first tranche and successfully covered.

The company’s management has a long-term vision - reflected in its future business strategy - which includes some integration through launching a new LoB for River Transport and River Port Management. This is in addition to aggressive expansion in the Land Transport LoB and the newly operating Global Depot Solutions Company, serving the Isotank trucks. These new LoB (and the planned expansions) will cause a capex of EGP530mn to be expensed over the next 3-4 years - to be financed through debt, equity and internal sources. The Capex plan also represents a major risk for the company’s expected future growth should it fail to secure the debt necessary to finance 33% of this capex as planned.

We believe strong potential remains for Egytrans’ LoB as the global economy and trade recover, following the global financial crisis. Moreover, the company plans to capitalize on the anticipated growth for the fledgling Egyptian River Transport industry (aligned with Land Transport), backed by major GoE investment in the sector’s infrastructure projects.

Egytrans’ revenues, margins and profits are expected to undergo a major shift, following the addition of the new high-margin LoB. We expect revenues to register a 6-year CAGR of 14% to EGP436.1.4mn by 2015 (vs. EGP201.5mn in 2009). EBITDA margin is also expected to improve significantly throughout the projected years to record 33% by 2015 (vs. a mere 5.7% in 2009). As for net profits, we forecast them to show a CAGR of 45% over the coming 6 years, increasing to EGP108.4mn in 2015 (up from EGP11.4mn in 2009).


Egytrans is one of the pioneers in the Transport & Logistics sector

Strong potential for current and future LoB

A huge EGP530mn capex plan to realize its long-term strategy

Margins to grow following the entrance of the new LoB

Figure 1 | Egytrans Future Outlook

0

2

4

6

8

10

12

14

16

18

20

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2012 F 2013 F 2014 F 2015 F

Barges Capacity (TEUs)

0%

5%

10%

15%

20%

25%

30%

35%

0

50

100

150

200

250

300

350

400

450

500

2009 A 2010 F 2011 F 2012 F 2013 F 2014 F 2015 F

Revenues EBITDA Net profitsEBITDA margin Net profit margin


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


5

In light of the above, we used a Discounted Cash Flow (DCF) method to evaluate the company’s stock and reached a LTFV of EGP20.8/share, implying 53% upside potential from current market price. Meanwhile, Multiples Relative Valuation method confirmed our positive view for the stock’s performance. ETRS is currently traded at 2010 PER and Price/Revenues multiples of 14.5x and 1x, lower than its global peers’ averages of 22.8x and 2x, respectively. However, we must also consider that the company’s stock holds a strong growth potential should its capex plan prove fruitful. Taking this substantial growth in earnings into account, the stock is currently traded at 2012 PER of 4.7x.

Finally, we assigned simple weights for each of our valuation methods in addition to the technical target price, accounting for the effects of speculation on the sector’s stocks and the positive news regarding the global recovery, in addition to GoE investment in the Transport & Logistics sector’s infrastructure. Thus, we reached a TP of EGP23.4/share, implying 72% upside potential. We therefore initiate coverage on the stock with a Strong Buy recommendation and a High Risk rating.

Figure 2| Target Price Calculation Valuation Method Assigned Weight Fair Value W * PLTFV 25% 20.8 5.2P/E multiple 25% 21.3 5.3P/R multiple 25% 27.0 6.8Technical Target Price 25% 24.5 6.1Target Price 100% 23.4Upside/Downside Potential 72%Market Price 13.60

Source: CICR forecasts

Downside Risks to Recommendation

Failing to secure the debt required to finance the EGP530mn planned may negatively impact the company’s future business plan, which is considered the key driver for its anticipated growth. Hence, we assigned a High Risk rating for the stock.

Slower-than-expected recovery for the global economy and trade.

Any government intervention leading to delayed development of the River Transport sector’s infrastructure.

LTFV and Multiples valuation confirm the stock’s potential

TP of EGP23.4 and an upside potential of 72% - Strong Buy Recommendation


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


6

Figure 3| Financial Summary and KPIs Figures in EGPmn unless otherwise statedItem 2009 A 2010 F 2011 F 2012 F 2013 F 2014 F 2015 F 6-Y CAGRCurrent LoBs performance:Revenues 201.5 207.5 213.7 224.4 240.1 256.9 274.9 5%Growth 3.0% 3.0% 3.0% 5.0% 7.0% 7.0% 7.0%EBITDA margin 5.7% 5.8% 5.9% 6.4% 6.7% 6.8% 7.1%New LoBs performance:1) River PortsRevenues 22.0 35.0 45.0 56.3Growth 59.1% 28.6% 25.0%EBITDA margin 77.3% 78.6% 80.0% 81.0%2) River Transport# Barges 6 10 12 18Capacity in TEUs 44,351 78,448 91,685 136,036Revenues 30.0 48.0 60.0 69.0Growth 60.0% 25.0% 15.0%EBITDA margin 71.7% 76.0% 77.5% 78.2%3) Land TransportRevenues 20.0 23.0 26.0 28.5 30.8Growth 15.0% 13.0% 9.6% 8.0%EBITDA margin 60.0% 61.7% 62.7% 63.5% 64.3%4) GDS CompanyRevenues 2.6 3.2 3.8 4.6 5.1Growth 21.0% 21.0% 21.0% 10.0%EBITDA margin 9.2% 12.9% 16.1% 18.9% 21.9%Overall performance:Revenues 201.5 207.5 236.3 302.6 353.0 395.1 436.1 14%Growth 3.0% 3.0% 13.9% 28.0% 16.6% 11.9% 10.4%EBITDA margin 5.7% 5.8% 11.5% 23.2% 28.4% 31.0% 33.0%Net profits 11.4 14.6 14.0 45.2 68.5 85.5 108.4 45%Growth 4.2% 27.6% -4.2% 223.3% 51.6% 24.9% 26.8%

Source: CICR forecasts based on ETRS management guidance


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


7

II. Maritime Transport & Logistics Industry

A. Market Developments

1. Cargo Throughput

Cargo throughput in Egyptian seaports exhibited a 4-year CAGR of 7% to 117.2mn tons in FY08/09 (versus 89.4mn tons in FY04/05). The top five ports contributed 87.1% of the total cargo throughput in FY08/09, led by Damietta seaport (24.3%) with 28.5mn tons.

Total year-on-year (YoY) cargo throughput in the Egyptian seaports grew c.3% in FY08/09, up from 115.3mn tons in FY07/08. East Port Said seaport recorded the highest growth rate of 21.3% (to 20.4mn tons), contributing 17.4% of the total cargo throughput.

Figure 4 | Egyptian Seaports’ Total Cargo Throughput YoY (In 000s tons)

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

FY04/05 FY05/06 FY06/07 FY07/08 FY08/09

Exports Imports Growth rate

Source: EMDB

2. Container Handling

Container traffic is the Maritime Transport industry’s primary segment – it had grown at a 4-year CAGR of 17% to 6mn TEUs as of FY08/09 (vs. 3.2mn TEUs in FY04/05). This increase was a result of a worldwide uptrend in cargo containerization.

In FY08/09, containers handled in the Egyptian seaports climbed c.9% YoY from 5.5mn TEUs to 6mn TEUs. This was driven by East Port Said seaport with 2.5mn TEUs (40.7% of total container throughput). The port recorded a growth rate of 26.2% during FY07/08.

Cargo throughput grew at a 4-year CAGR of 7%, to 117.2mn tons in FY08/09

The Container Handling LoB is the fastest growing in the sector, showing a 17% 4-year CAGR to 6mn TEUs as of FY08/09

A 4-year CAGR of 7%


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


8

Figure 5 | Egyptian Seaport Containers Handling YoY (In TEUs)

0%

5%

10%

15%

20%

25%

30%

35%

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

FY04/05 FY05/06 FY06/07 FY07/08 FY08/09

Alexandria Damietta Port Said Red Sea Growth rate

A 4-year CAGR of 17%

Source: EMDB

3. Vessels Traffic

Egyptian seaports received 20.8k vessels in FY08/09 (vs. 14.8k vessels in FY04/05), implying a 4-year CAGR of 9%. General cargo vessels were the primary contributors, accounting for 28.7% of the total figure. West Port Said seaport was the most active, receiving 4.9k vessels - nearly 23.5% of total vessels.

On an annual basis, vessels received by seaports in Egypt rose c.4% in FY08/09 over FY07/08. The Egyptian merchant fleet contributed 18.7% of total vessel traffic in FY08/09.

Figure 6 | Egyptian Seaports Vessel Traffic YoY

-20%

-10%

0%

10%

20%

30%

40%

0

5,000

10,000

15,000

20,000

25,000

FY04/05 FY05/06 FY06/07 FY07/08 FY08/09

Alexandria Damietta Port Said Red Sea Growth rate

A 4-year CAGR of 9%

Source: EMDB

Port Said ports dominate in terms of vessels received


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


9

4. Passenger Traffic

Passenger traffic through Egyptian seaports recorded a 4-year CAGR of -1%, down to 3mn in FY08/09 compared to 3.2mn in FY07/08. The decline resulted from political tension in the region, piracy in the Gulf of Aden and the global financial crisis.

Red Sea ports contributed most to passenger traffic in FY08/09 with 2.3mn passengers, (77.2% of total passenger traffic), and of these Nowebaa seaport held a leading 33.3% market share. Nowebaa is the primary gateway for Pilgrims and Omra travelling by sea to Saudi Arabia.

Figure 7 | Egyptian Seaports Passenger Traffic YoY (In 000s)

-8%

-6%

-4%

-2%

0%

2%

4%

6%

2,900

2,950

3,000

3,050

3,100

3,150

3,200

3,250

FY04/05 FY05/06 FY06/07 FY07/08 FY08/09

Passengers Growth rate

Source: EMDB

Passenger Traffic LoB exhibited volatility during the last four years

A 4-year CAGR of -1%


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


10

B. Market Dynamics

1. Economy & Trade

Given that 90% of Egyptian foreign trade is transferred through seaports, the country’s overall economic and trade performances are key drivers for the Maritime Transport industry. Consequently, improved growth prospects for the local economy and anticipated recovery in global trade will help boost operations and traffic in both the Egyptian seaports and the Suez Canal.

Moreover, growth in tourism will improve traffic in Egypt’s touristic seaports, especially those on the Red Sea coast. International Tourists Arrivals (ITAs) are projected to grow at a CAGR of 11% over the next five years till FY13/14.

As for GDP, it is projected to increase at an average growth rate of 7% on annual basis during the next five years, while export and import volumes are expected to progress at a respective 5-year CAGRs of 8% and 6% over the same time span.

Figure 8 | Growth Rates for the Industry’s Key Drivers

0%

2%

4%

6%

8%

10%

12%

14%

GDP Suez Canal traffic Passenger trafficExports Imports


2. Suez Canal

The importance of the Suez Canal stems from its strategic location at the heart of the world’s maritime trade routes and its distinction as the shortest waterway between East and West (Asia - Europe).

The use of the Suez Canal rather than the Cape of Good Hope (the alternative waterway from Asia to Europe and the Americas – around the African continent) minimizes fuel cost, reduces distances, lowers freight rates and increases vessel turnover.

The most important driver for the Suez Canal’s performance is the dredging activity that allows it to receive larger, fully-loaded vessels. This, in turn, increases the potential number of vessels. The canal is currently able to receive ships with a draft of 62 feet and a maximum load of 220k dwt , and can also accommodate partially-loaded Very Large Crude Carriers (VLCCs) and Ultra Large Crude Carriers (ULCCs).

With all this in mind, the Suez Canal Authority (SCA) is working to increase the canal’s draft to 66 feet by the end of 2009. In addition, a study is underway regarding increasing the draught to 72 feet so that it may accommodate fully-loaded VLCCs and ULCCs.

Economic and trade recovery will stimulate growth in seaports and terminals

Suez Canal reduces distances and minimizes costs

Canal dredging activities will enhance the seaports and terminals


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


11

Figure 9 | Dredging Activity in the Suez Canal Item/Year 1869 1956 1962 1980 1994 1996 2001 to dateLength (In km) 164 175 175 190 190 190 190Water depth (In m) 10.0 14.0 15.5 19.5 20.5 21.0 22.5Ship's draft (In feet) 22 35 38 53 56 58 62Ship's max. load (In dwt) 5,000 30,000 80,000 150,000 180,000 185,000 220,000 Source: SCA

Increasingly frequent acts of piracy are a major challenge facing international maritime trade, especially in the Gulf of Aden (East Africa) – the main portal to the Red Sea and Suez Canal. The greatest risk is that ship owners will shift the primary trade route from the Suez Canal to the Cape of Good Hope. Still, the decline in Canal performance is mainly the result of the global financial crisis, not piracy. Though piracy certainly poses a risk, its impact has been minimal up till now.

Figure 10 | Piracy Activity vs. Suez Canal Traffic (MoM growth)

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

1-Jan-08 1-May-08 1-Sep-08 1-Jan-09 1-May-09 1-Sep-09 1-Jan-10

Suez Canal traffic growth (LHS) Piracy activity growth (RHS)

Source: IMO and CICR database

3. Oil Prices

Oil tankers have contributed an average 19% of the Suez Canal’s traffic over the past five years, a statistic highlighting the importance of oil price movements. An increase in the price of oil means increased demand, thus enhancing oil tanker traffic through the Canal. The Suez is currently the main route for the delivery of oil and gas (and their derivatives) from Asia to Europe and the Americas (and vice versa). Furthermore, high oil prices lead ship owners and vessel operators to select the shortest routes in order to reduce transit time and costs.

Piracy still a challenge for canal traffic, yet with a minimal impact

Rising oil prices benefit Suez Canal traffic


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


12

Figure 11 | Oil Prices vs. Suez Canal Traffic (MoM growth)

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Oct-06 Jun-07 Feb-08 Oct-08 Jun-09 Feb-10

Oil prices growth Suez Canal traffic growth

Source: CICR database

4. Global Containerization

The global cargo containerization trend is considered another key driver for Egyptian seaports’ long term growth, especially if the government’s investment plans for seaport and terminal infrastructure are implemented as scheduled.

5. Government Incentives

In an attempt to enhance the Maritime Transport industry, the Egyptian government invests considerable resources in seaport infrastructure. It aims to expand capacities and develop facilities in order to attract private investors. The government has an ambitious 5-year investment plan for the Egyptian Transport sector amounting to EGP90bn (USD16.2bn), of which EGP50bn (USD9.1bn) will be earmarked for the Maritime Transport industry (specifically to develop and upgrade seaports and terminals). Private terminal operators have also announced a number seaport projects.

The global containerization trend enhances efficiency in sea terminals

EGP50bn to be invested in seaport and terminal infrastructure over the next 2-3 years


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


13

Figure 12 | Public & Private Investments in Egyptian Seaports & Terminals

Source: EMDM, Noozz website, OCI and local newspapers

In the meantime, the GoE intends to offer a series of terminal and infrastructure development projects (worth USD1.4bn) during 2010 and 2011:

Alexandria: Once again offering a bulk terminal in wharf No.90 (with total estimated investments of USD69mn) during 1H10. The terminal’s total length is 255 meters and its draught is 14 meters, with a total area of 77k sqm.

Alexandria: Offering an extension to the wharf No.90 (with total estimated investments of USD260mn) during 1H10.

Damietta: A multi-purpose terminal will be offered with total estimated investments of USD368mn. This terminal is covers a total area of 150k sqm with a 14.5-meter draught and a 300-meter long wharf. A grain wharf will also be established for a total investment estimated at USD15mn.

Al Adabeya: A dry bulk terminal will be established with total investments amounting to USD250mn during the first half of 2010.

East Port Said: A general cargo terminal will be established and offered during the first half of 2011. The terminal will cover a total area of 500 sqm and a draught of 16 meters in order to receive especially large vessels and containers. The estimated investment of this terminal is USD230mn. Furthermore, a supplement logistics zone will be established at an expected investment cost of USD150mn, to be offered during the same period in 2011.

Port Authority Executed Investments Current and future InvestmentsAlexandria - The general cargo, containers, and touristic links. - The development of El Dekheila seaport and

- The development of the trucks's entrance and linking linking with Alexandria seaport.the Eastern district with the international road. - The construction of multi-purpose station.- The construction of logistic centers and electronic - The development of the maritime zone anddepartment buildings. the ships movement tower.- In September 2007, Alexandria International Container - The construction of the touristic marina project.Terminals, a subsidiary of Hutchison Port Holdings, inauguratedtwo new terminals in Alexandria & El Dekheila seaports.

Damietta - Importing two tugboats with a pull power of 50 tons per each - Expanding the logistic zones and constructingin addition to a guidance boat. The total investment cost the petrochemicals complex.amounted EGP13.3mn and EUR11.9mn, respectively. - The establishment of a new container terminal- Completion of the infrastructure related to the seaport for Damietta International Company over a totaldevelopment. area of 1.1 mn sqm.- Exporting the LNG. - The development of the terminal's wharf to be able to- In November 2007, China Shipping Group acquired a 20% stake receive the new generation giant vessels.in Damietta container seaport with a total investments of USD200mn.

Port Said Port Said Seaport:- The development of wharfs.- Establishing storage and warehousing areas.- Adding areastocover the expected increase in the containers andcargo handling activities.East Port Said Seaport:- Deepening the navigation passage.- The establishment of the second stage of the first containersterminal in addition to constructing generalcargo wharfs.- General development for the seaport through three stages coveringa total area of 35 km².El Arish Seaport:- General devlopment to encourage exports through horizontaland vertical expansions.

Red Sea - In December 2007, it was announced that the Chinese based COSCO - General development and upgrade for the 21 affiliated seaports,Pacific had acquired a 20% stake in Suez Canal Container Terminal, including commercial, oil, and metallurgical seaports.which already started the construction on phase 2 of the East Port Saidterminal.- In February 2008, DP World, a UAE based terminal operator, acquired a90% stake the Egyptian Containers Handling Company (ECHCO) theoperator of El Sokhna seaport terminal ina deal worth USD670mn.


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


14

C. SWOT Analysis

Strengths

Egypt’s strategic location at the heart of the world’s maritime trade routes enhances local and transit foreign trade.

The Suez Canal has a market share of c.15% of the global maritime trade traffic and plays a vital role in linking Asia with Europe and vice versa. It is also used for the delivery of oil from Asia to Europe.

Egyptian seaports and terminals possess a wide range of facilities serving nearly all types and sizes of vessels.

The Egyptian Maritime Transport industry performed robustly amidst the international financial crisis.

Egypt’s political and economic stability make it one of the most desired destinations for maritime trade flow.

Weaknesses

Egyptian seaports and terminals require further development and advanced technology in order to fulfil all clients’ needs.

Seaport congestion must be improved to save time spent waiting before entering ports, especially during busy periods.

The country’s mostly-obsolete merchant fleet is in need of upgrade.

Opportunities

Signs of global recovery.

Seaports and terminals still not fully utilized, leaving room for potential growth.

The Egyptian government plans to direct EGP50bn toward seaport and terminal infrastructure and capacity expansion in order to attract additional private investors.

Private terminal operators have announced a raft of long term investments in the seaports they control.

Dredging activities implemented in Suez Canal in order to widen and deepen its draught are crucial to receiving the giant generation of fully-loaded VLCC and ULCC vessels. Accommodating these vessels will increase Canal traffic.

Threats

A slowdown in the momentum of global recovery.

The increasing threat of piracy in the Gulf of Aden (the main portal to the Suez Canal) is considered one of the major risks facing Canal traffic and the maritime industry in general. It leads ship owners to shift traffic to the Cape of Good Hope as a safe route, particularly when oil prices are low.


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


15

D. Future Outlook

We believe recovery in the global economy and trade during 2010 will be stimulated by growth in the industrial production of developed countries, as well as the anticipated boost in export and import activities in developing and emerging countries, especially in the MENA region and Asia. International trade will likely regain momentum, thus enhancing maritime trade. The Maritime Transport industry will mirror this positive performance over both the medium and long term.

On the local front, Egypt’s economy is anticipated to grow at an annual average of 7% till FY13/14.

The Egyptian government’s plans to invest in Transport sector infrastructure (especially in maritime seaports and terminals) will enhance capacities and efficiency in order to meet international standards and requirements.

We forecast a strong future performance for Egyptian seaports and terminals. This will be coupled with solid growth rates, particularly for the containers LoB on the back of the global containerization trend.

Figure 13 | Maritime Transport LoB Growth Rates - Future Outlook

-20%

-10%

0%

10%

20%

30%

40%

Cargo throughput Containers handlingVessels traffic Passengers traffic


Strong future performance for Egypt’s seaports and terminals supported by GoE investment in infrastructure and recovery in global trade


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


16

III. River Transport & Logistics Industry A. Market Structure

1. Background and geographical location:

Egypt enjoys a 1,500-km long stretch of the Nile River, and four operating navigational routes. Further routes are to be established, which will revive the river as a crucial means of transporting goods and commodities.

Figure 14 | Operating Navigational Routes (2008) Route Length (km)Cairo-Damietta 240Cairo-Alexandria 220Cairo-Aswan 960Aswan-Halfa Valley 350

Source: RTA

Egypt’s River Transport industry has been sorely neglected compared to other modes of transport. The sector failed to account for more than 1% of total freight services in 2008 (roads possessed the lion’s share with 93%; railways followed with 6%). The River Transport industry’s small size is in part the result of the shallow nature of the Egyptian Nile. In some areas the river is less than 2 meters deep – a small-sized barge with 450-ton capacity requires a minimum depth of 2.5 meters.

In other countries, river transport accounts for a significantly larger share of freight services. In the Netherlands the figure is 34%, in Belgium it is 26% and in Luxemburg it is 14%.

Figure 15| River Transport Share in Selected Countries

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0%

Netherlands

Germany

Belgium

Romania

Luxemborg

Austria

Bulgaria

France

Poland

Egypt

River Railway Roads

Source: Eurostat

Geographical nature of the River Nile enables the establishment of further ports


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


17

2. River Ports

Even though the number of Egypt’s river ports has reached around 50, only seven ports are currently utilized (operated by a number of companies in Greater Cairo and Alexandria). Most recently, the privately-owned port of Tanash was inaugurated by the National River Transport Company (NRTC) - an affiliate of Citadel Capital – in late 2009. The structure of a typical river port’s facilities is shown in chart below.

Figure 16 | River Port Layout Measures and Basics

Storage Areas30%

Streets29%

Cargo Pavement

14%

Warehouses11%

Entrance & Cargo weight

6%

Services5%

Admin. Area 5%

Source: RTA

3. Players & Market Shares

Generally, the market is divided among a number of companies operating barges for river transport. In 2008, the private-sector volumes of cargo traded represented 42% of transported goods, followed by 25% for the National River Transport Company and 18% for El-Hawamdeya Sugar Company in Giza.

Figure 17 | River Transport Market Players & Shares (2008)

Private Sector42%

National River Transport Company (NRTC)

25%

Al-Hawamdeya Sugar Company

18%

Others15%

Source: RTA

Even following the recent inauguration of Tanash Port, only 7 ports out of 50 are utilized


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


18

B. Market Developments

1. Market Performance

The quantity of goods transported during the period 2003-08 showed a CAGR of 11%, increasing from 1.28mn tons in 2003 to 2.16mn tons in 2008. Goods transported showed a YoY growth of 4% in 2008, up from 2.1mn tons in 2007. Stones topped the list of goods transported in 2008, with a share of 22% (476k tons). Clay followed at 19% (407k tons).

Source: RTA Source: RTA

2. River Transport Infrastructure Developments

The GoE is currently proceeding with the infrastructure developments in order to improve and enhance the efficiency of the river routes. These include;

Preparing river ports (current and offered for utilization) with the appropriate stevedoring equipments.

Linking the river ports to the maritime ports through navigation routes.

Development of river ports owned by the RTA in order to provide modern facilities that could benefit from the container handling activity in the Alexandria and Damietta sea terminals.

Upgrading and dredging the existing navigation routes.

3. Barge Operations There is currently a fleet of around 328 barges operating on the river. This fleet is 52%-owned by the military (which recently established a new company for River Transport, National Nile for River Transport) and public companies. Private companies hold a 39% market share of the fleet, and individuals own the balance. The majority of these barges are outdated and not considered fully-operational.

Figure 18 | River Transport Growth by Cargo Type Figure 19 | Growth in River Cargo Transported

-

100,000

200,000

300,000

400,000

500,000

600,000 2007 2008

-10%

0%

10%

20%

30%

40%

50%

0.0

0.5

1.0

1.5

2.0

2.5

2004 2005 2006 2007 2008 8M08 8M09

Cargo GR %


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


19

Figure 20 | Barges Ownership Breakdown (2009)

Public sector and Military

52%Private Sector

39%

Individuals9%

Source: RTA and ETRS

4. Operating River Ports

There are currently only seven river ports being utilized out of the 50 located throughout Egypt. The vast majority are owned and operated by public companies and distributed throughout the Greater Cairo and Helwan governorates.

Figure 21 | Operating River Ports (2009) River Port Governorate Area (sqm) OperatorAl Nasr Mining Qalioubeya 650 Al Nasr Mining

Abu Zaabal Fertilizers Qalioubeya 1,350 Abu Zaabal Fertilizers

Al Maasara Helwan 63,000 Misr Aluminum

General Nile for River Trasnport Helwan 50,400 General Nile for River TrasnportCoke - El Tebbin Helwan 58,800 Al Nasr for Coke Manufacturing

Lime Stone Helwan 25,200 Egyptian Iron & SteelTanash Giza 27,500 CitadelSource: RTA and ETRS


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


20

C. Market Dynamics

1. Cost Efficiency

The smallest barge’s capacity is 450 tons; the standard-size holds 900 tons and a mega barge’s capacity could reach up to 8k tons. Barges are usually built at dry docks, as in Alexandria shipyard or by Arab Contractors Shipyard in Helwan. The cost of standard sized barge with a capacity of 900 tons ranges from EGP6mn – EGP10mn, compared to EGP40-60mn for 23 railway trailers with the same capacity.

Every type of goods is shipped through the river, at lower transport cost compared to other modes, but also as a slower pace. At a standard-sized barge’s speed of 14-16 km/hour it takes a barge nearly 16 hours to ship goods from Cairo to Alexandria (a distance of 220 km).

The standard-sized river barge can handle the equivalent of 30 heavy trucks per shipment, and hence is considered a cost-effective mode of transport. The basic shipment cost per metric ton is EGP11, compared to EGP20 for road transport and EGP16 for railway transport.

The cost of transporting a whole container by river is EGP330. Road transport‘s cost per container is EGP440, and railway transport’s EGP410. In comparison, the total shipment cost via river transport in Sudan amounts to USD250 (EGP1,375).

As for cargo transport, it costs EGP20/metric ton for road and EGP16.5/metric ton for railway. Again, river transport is cheaper, costing EGP11/metric ton.

Figure 22 | Transport Cost for Cargo Figure 23 | Transport Cost for Containers

Source: RTA Source: RTA

Beyond this, as oil price subsidies are gradually phased out, River Transport will have a real competitive advantage over other modes of transport due to its cost and time efficiencies.

2. Safest Transport Mode

Road accidents caused by trucks on highways represented 28% of total accidents in 2008 (1.8k accidents), and train accidents reached 1.3k that same year. River transport has proven to be one of the safest modes of transporting goods, especially following the application of Differential Global Positioning Systems (DGPS) in addition to GPS navigation, which provides accurate navigation by scanning the river.

River transport is cost effective compared to road and rail

0

5

10

15

20

25

Road Railway River

EGP/metric ton

0

50

100

150

200

250

300

350

400

450

500

Road Railway River

EGP/container

River Transport is the safest mode for transporting goods


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


21

Figure 24 | Accident Share by Transport Mode (2008)

Road (Trucks)28%

Private27%

Railway20%

Other *11%

Taxis9%

Buses4%

Motorbikes1%

* Other includes river accidents Source: RTA

3. Environmentally-Friendly

Unlike other transport modes, river transport is considered an environmentally-friendly mode of transport, with less CO2 emissions in 2008 (15.5 gm/metric ton/km) than either road transportation (50.3gm/metric ton/km) or railway transportation (16.2gm/metric ton/km).

Figure 25 | CO2 Emissions by Transport Mode (gm/metric ton/km)

0

10

20

30

40

50

60

Road Railway River

Source: RTA

Environmental friendly; lowest CO2 emissions


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


22

4. Government Initiatives & Incentives

The GoE has decided to emphasize making better use of river transport through supporting the RTA’s efforts to complete its infrastructure projects. The GoE has allocated EGP800mn to provide the sector with the required maintenance for infrastructure and is waiting for investors to start bidding on the available projects. The government plans to establish and offer six additional river ports. In an attempt to attract further investments to support the sector, the GoE is providing investors with further facilities through the RTA:

A period of 27 months for the investor to build a port or barge and begin operations. The estimated cost of the port will range between EGP150-200mn.

The Authority will take 70% of the revenues as a penalty for any delay caused by

the investor. The concession agreement duration is 25 years. The authority will provide the investor with all the required approvals (Ministry of

Irrigation, Ministry of Civil Defense, and the Ministry of Environmental Affairs). The River Transport Authority will be responsible for the surveillance and regulation

of the investing companies. New barges’ capacities may range from 1,200-1,600 tons (or 92 TEUs).

In order to support and enhance the industry’s administrative efficiency, President Hosni Mubarak issued Presidential Decree No.117 for the year 2008, amending Presidential Decree No. 474 for the year 1979 regarding the establishment of the General Authority for River Transport. In early 2010, the Ministry of Defense & Military Production issued Decree No.3 to establish The National Nile for River Transport Company


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


23

D. SWOT Analysis

Strengths

Egypt’s river Nile is linked to the Red and Mediterranean Seas through its branches, Rashid and Damietta.

The Nile is wide enough to host traffic from South to North and vice versa.

Strong consumption boosts internal trade, thus enhancing transport along the Nile.

The GoE is currently in the final stages of cleaning and developing navigation routes as well as replacing and renovating the old locks.

Weaknesses

Egyptian river ports and terminals require further development and advanced technology in order to fulfil all clients’ needs.

The vast majority of the current barge fleet (owned by the public and military) are obsolete and outdated, which make river transport inefficient.

The river draft in certain areas does not meet the minimum required depth of 1.5 meters needed by barges.

Al-Dekheila seaport is not well-linked to the river transport network, which minimizes the utilization of this vital maritime seaport in transferring the goods and containers to and from the river ports.

An industry requiring relatively high amounts of capital, requiring large investments in ports and barges.

Opportunities

There is a great opportunity to expand in Upper Egypt, especially with the development and modernization program the GoE has adopted. The expansion in Sudan is natural as it is the extension of the Egyptian Nile and the Sudanese government is encouraging foreign investments in all sectors.

River Transport currently represents less than 1% of the total goods transferred within Egypt, far less than the Road and Railway modes. This highlights wide latitude for future growth.

River Transport will have a competitive edge in terms of costs, especially as oil price subsidies are gradually phased out. This is mainly due to economies of scale (i.e. one barge with a capacity of 1,500 tons can transfer more than 50 semi-large trucks).

Government support as it offers new six river ports during the next 2-4 years.

Threats

Any slowdown in the offering process for the river ports may prove an obstacle to growth.

The recent conflict between the 10 Nile Basin countries over an agreement regarding each country’s stake of Nile water is considered a challenge with the potential to affect the water level in both Egypt and Sudan.


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


24

E. Future Outlook

1. Barge Supply

Currently, there are about 328 barges owned by the military, public companies and private companies. We expect the barge supply to increase in the next 3-5 years as a result of industry newcomers such as Citadel Capital and Egytrans. The latter is expected to add about 18 new barges to the market by 2013.

2. River Port Supply

We expect that GoE intends to offer around new six river ports with different areas, storage space, and handling capacities. The potential ports are expected to add 1.7mn tons of storage capacity and 45mn tons of handling capacity during the next 2-4 years. These ports will cover both Northern and Southern Egypt.

Figure 26 | River Ports Expected Supply

Source: RTA and ETRS

3. Demand for River Cargo Transport

Demand for cargo transport via the river is expected to record a CAGR of 15% over the next five years, reaching 5.1mn tons by 2014. In terms of River Transport’s market share versus Road and Rail transport, it is expected at 0.6% in 2014 vis-à-vis the 0.3% estimated for 2009. The industry is expected to boom starting 2012 on the full operations of the potential ports currently being offered as well as the increase in the number of barges within the market. The expected growth in the local economy and trade and the GoE’s EGP800mn investment plan for boosting the industry’s infrastructure are considered key drivers for this growth in demand.

Figure 27 | Demand Outlook on River Cargo Transport (mn tons)

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

0

1

2

3

4

5

6

2009 F 2010 F 2011 F 2012 F 2013 F 2014 F

River cargo handled River Transport share


Port Governorate Area (sqm) Storage Capacity (tons) Handling Capacity (tons)Al-Nahda Alexandria 16,800 80,000 2,000,000Extension of Al-Nahda Alexandria 121,800 493,300 12,800,000Meet-Ghamr Dakahlia 42,000 170,000 4,400,000West Akrad Assiut 43,050 173,900 4,500,000Al-Monsha'a Sohag 164,640 667,000 17,300,000Qena Qena 37,380 152,000 4,000,000


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


25

IV. Egytrans Profile

A. Background & Structure

Egyptian Transport & Commercial Services (Egytrans) is an S.A.E. company established in December 1973 under Egypt’s open door policy with regards to private enterprises, though its origins date back to 1939. Egytrans was nationalized in 1964 and became one of the biggest companies in Egypt, offering shipping, tourism agency and other transport services. The company started its business as a limited liability company with a capital of EGP10k, and its capital has since reached EGP156.1mn distributed over 15.6mn shares following the closing of the subscription for the first tranche of the recent capital increase. The second tranche (amounting EGP100mn) will be called depending on the company’s needs. Since its inception, Egytrans has grown into a true leader in the Egyptian transport field with more than 350 employees and 8 branches spread across strategic locations near the country's main seaports, airports and transport centers.

Figure 28 | The Capital-Increase Proceeds and Uses (EGP 000s) Item 1st tranche 2nd tranche Total proceedsEgytrans River Ports 65,000 0 65,000Egytrans Barge Link 10,000 75,000 85,000Global Depot Solutions 4,000 0 4,000Consolidation Warehouses 5,000 0 5,000Electronic Trading systems 5,500 0 5,5003PL system 5,000 0 5,000Improvements & Developments 5,500 0 5,500Land Transport project 0 25,000 25,000Total 100,000 100,000 200,000

Source: ETRS Egytrans offers various transport and logistics services through its subsidiaries and affiliates. It offers Air & Sea Freights, Custom Clearance, Consolidation, Chartering, Warehousing & Storage, Project Cargo Forwarding, Land Transport, Transit, Specialized Transport, Free Zone, Project Logistics, Fairs & Exhibitions, and the newly introduced, Third Party Logistics (3PL) and Non-Vessels Operating Common Carriers (NVOCC) services.


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


26

Figure 29 | Egytrans Corporate Structure

Source: ETRS

B. Strategy

Egytrans’ management strategizes according to a long-term vision by innovating new types of services to fulfill its clients’ needs. The company is also concerned with integration through its long term investment strategy. The salient points of this strategy are as follows:

Systems automation starting 2010 onwards.

Introducing the new Third Party Logistics (3PL) system (door-to-door) transport.

Expanding on the Land Transport LoB.

Entering the new River Transport LoB via its new subsidiaries.

Not paying any dividends till the expensing of the company’s EGP530mn capex concludes in 2014.

Adopting a long term investment strategy.

Barwill Egytrans Shipping Agencies – 30% owned

Global Depot Solutions (GDS) – 75% owned

Egytrans Barge Link Company – 100% owned

Egytrans River Ports Company – 100% owned

Scan Arabia Shipping Agencies – 30% owned

Egytrans

Subsidiaries Affiliates

Egyptian Transport & Logistics (ETAL) – 100% owned


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


27

Figure 30 | Egytrans Activities in the Supply Chain

Source: CICR

C. Key Projects

Given the booming infrastructure projects in Egypt, Egytrans is considered one of the leading companies involved in different fields, capitalizing on its considerable experience. The table below shows a breakdown of some of the projects Egytrans is engaged in with international partners.

Figure 31 | Selected Projects Handled by Egytrans

Source: ETRS

Exporter Vessels Operator Sea Port/Terminal

ETRS arrange handlingactivity

Land Transport

Warehouses

ETRS has a fleet of trucks

River Port/Terminal

Importer

ETRS will operateRiver Terminals

ETRS offers the Multimodal services(door-to-door)

Land Transport

River Transport

ETRS has a fleet of trucks

ETRS will have a fleetof river barges

Importer

ETRS act as Shipping Agent, Freight Forwarder & Chartering

ETRS owns and rentswarehouses in differentseaports' cities

Project Field Partner CountryAbu Sultan Power Station (1,2,3 & 4) USAID General Electric USARod El Farag Transformer Substation USAID General Electric USACairo Waste Water Project USAID Herbert Jones J.V. & USA

Fru-Con Construction USAEl Sharqeya Irrigation Project Agriculture Marubeni Corp. JapanRice Technology Center - Kafr El Sheikh Agriculture Kajima Corp. JapanRice Technology Center - Alexandria Agriculture Shimizu Construction JapanCairo Metro (2nd phase) Transport Mitsubishi Corp. JapanUpper Nile Telecom System Transport NEC JapanEnppi Project - Amreya Petroleum Ennpi EgyptAbu Qir LPG Recovery Projects Petroleum Japan Steel Works Ltd. JapanEgyptian Petrochemicals - Amreya Petroleum Toyo Engineering Corp. JapanEl Max Hexane Plant Petroleum Kawasaki Heavy Ind. Ltd. JapanShell Marketing Company - Cairo Petroleum Royal Dutch Shell NetherlandsWestern Desert Oil Drilling Petroleum HBS International TunisiaSuez Cana Authority Projects Waterworks Davy Bamage GermanyEl Beheira Project Waterworks Tomen Corp. JapanCairo Waste Water Project Waterworks Christiani UK

Cogelec UKMisr Concrete J.V. Egypt

South Giza Water Plant Waterworks Daj Nippon Construction JapanCairo East Power Stations Alsthom FranceCairo West Power Stations Alsthom FranceFayoum Power Stations S. Shuem SwitzerlandAswan II Power Stations Toshiba Corp. JapanCairo South Power Stations Sadelmi ItalyTalkha Power Stations Sadelmi ItalyAssuit Transformer Substation Power Stations Marubeni Corp. JapanDamanhour Power Stations Babcock-Wilcox Canada

Sadelmi ItalyGIE Ansaldo Italy

Damietta Power Stations KWU-Siemens GermanySadelmi Italy

Kuraimat Power Stations Mecanica de la Penna SpainSidi Krir Power Stations Itochu Japan

Hyundai KoresCairo Pharmaceutical Plant Pharmaceutical Eli Lilly Egypt


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


28

V. Operational & Financial Analysis

A. Operational Analysis

Egytrans consists of various LoBs (please refer to the Background & Structure section). The company’s activities are distributed over two major areas: Integrated Transport and Free Zone. The former contains the majority of the company’s business segments, such as, Custom Clearance, Air & Sea Freights, Consolidation, Transit, Chartering, Transport and Non-Vessel Operating Common Carrier (NVOCC) and others.

Figure 32 | Market share by LoB (2009) LoB Market share % of gross profitProjects 33% 28%Import Consolidation 17% 16%Export Consolidation 28% 2%Transit 31% 16%Free Zone 17% 25%

Source: ETRS Annual Report 2009 Despite the 16% decline in the global shipping industry during 1Q09, Egytrans succeeded in raising its weighted average market share among Egyptian logistics services companies from 19% to 21%. This share was mainly based on projects logistics, consolidation (exports & imports), transit, and Free Zone services. Figure 33 | Contribution to Revenues by LoB (2007-09)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009

Free Zone Projects Sea FreightTransport Transit Services Commercial OperationsTailored Solutions Air Freight ConsolidationOthers

Source: ETRS

Varied LoBs fulfill all clients’ needs


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


29

B. Financial Analysis Revenues

Revenues grew at a 5-year CAGR of 8% to EGP201.4mn in 2009 (vs. EGP136mn in 2004), a 3% increase over 2009. This marginal increase was mainly attributed to the global financial crisis’ negative impact on the industry, though Egypt’s economic resilience largely saved the Maritime industry. This growth was mainly led by the Integrated Transport activities (69.3% of total revenues), which rose 15% YoY. Free Zone activities recorded a 17% decline, however, as the global financial crisis hit both imports and exports. In 2005, revenues dropped by 21% to EGP107.4mn, led by the 86% drop in Free Zone activity as the commodity type used from textiles shifted to vehicles.

Figure 34 | Revenues Growth by Activity (EGPmn)

-150%

-100%

-50%

0%

50%

100%

150%

200%

250%

0

50

100

150

200

250

2004 2005 2006 2007 2008 2009

Integrated Trasnport Free Zone IT growthFZ growth Total growth

Source: ETRS EBITDA & Margin

EBITDA registered a mild growth over the past five years at a CAGR of 1% (to EGP11.5mn in 2009 from EGP11.2mn in 2004). However, it grew by 38% YoY. In 2009, EBITDA margin recorded 5.7%, lower than the preceding 5-year average of 6.5% but 140bps higher than 2008’s 4.3% EBITDA margin.

Net Profit & Margin

In general, net profits adopted an upward trend over the past five years, growing at an impressive CAGR of 29% (to EGP11.4mn in 2009 from EGP3.2mn in 2004). Net profits rose 4.2% YoY, showing a resilient performance during the global financial crisis. In 2006 Egytrans posted net losses as a result of a one-time impairment of EGP3.9mn. However, when bottom line profits are adjusted for the impairment, the result is a net profit of EGP2.7mn.

Revenues showed a CAGR of 8% over the past 5 years

Higher EBITDA margin in 2009 despite the global crisis

Net profits registered an impressive 5-year CAGR of 29%


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


30

Figure 35 | Profitability Analysis (EGPmn)

-2%

0%

2%

4%

6%

8%

10%

-2

0

2

4

6

8

10

12

14

2004 2005 2006 2007 2008 2009

EBITDA Net profit/loss EBITDA margin Net profit margin

Source: ETRS EPS Growth & Dividends

EPS grew at a 5-year CAGR of 29% to EGP2.04 in 2009 (from EGP0.57 in 2004). The company’s annual general meeting (AGM) approved dividend distribution amounting to EGP11.2mn, implying a dividend per share (DPS) of EGP2. This gives a high dividend yield of 14.7% based on current market price. Only shareholders as of April 21st, 2010 are eligible for dividends (subscribers to the recent EGP100mn capital increase are not eligible). Dividends will be paid on two instalments, the first (50%) to be paid on April 27th, 2010 and the second (the remaining 50%) on October 31st, 2010.

An impressive 5-year CAGR for EPS; a valuable DPS of EGP2 with a dividend yield of 14.7%


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


31

C. 1Q10 Results Highlights Revenues

1Q10 revenues registered respective YoY and QoQ falls of 37.4% and 30.2%, to EGP34.5mn. This was attributed to the significant 78.7% decline in Free Zone activity of EGP3mn QoQ as the government changed the license regarding the types of commodities used in the Free Zone. Lower vessel traffic in the Suez Canal (5% below 4Q09) also curbed revenue growth.

EBITDA & Margin

EBITDA margin improved QoQ by 240bps to 2.9% due to a lower Cost/Revenues ratio resulting from increasing the revenues from the high margin Integrated Transport activity at the expense of the lower margin the Free Zone activity.

Net Profit & Margin

Net profits recorded EGP2.5mn in 1Q10 (compared to net losses of EGP0.8mn in 4Q09) driven by a better non-operating performance (mainly with regards to investment income) which increased 9x to EGP2mn YoY (versus EGP0.5mn for both respective quarters). As such, net profit margin improved to 7.2%, compared with a negative figure in 4Q09.

Figure 36 | Egytrans Quarterly Results (Actual vs. Forecasts)


Revenues dropped QoQ due to the decline in Free Zone activity and lower vessel traffic in the Suez Canal

EBITDA margin improved by 240bps QoQ

Net profits improved QoQ on the back of a better non-operating performance

EGPmn 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 A 2Q10 F 3Q10 F 4Q10 FRevenues 44.4 48.1 51.7 51.3 55.1 47.3 49.7 49.4 34.5 49.8 58.1 65.1

QoQ growth -8.1% 8.4% 7.5% -0.7% 7.4% -14.2% 5.0% -0.6% -30.1% 44.3% 16.7% 12.0%YoY growth 75.0% 9.7% 58.4% 6.3% 24.3% -1.7% -4.0% -3.8% -37.4% 5.3% 17.0% 31.8%Cost of Revenues (38.6) (42.6) (45.8) (47.4) (47.8) (39.3) (41.3) (46.0) (29.2) (41.1) (48.2) (60.2)

QoQ growth -8.9% 10.6% 7.4% 3.4% 1.0% -17.8% 5.0% 11.4% -36.6% 40.9% 17.4% 24.7%As a % of Revenues 86.9% 88.7% 88.6% 92.3% 86.7% 83.2% 83.2% 93.2% 84.5% 82.5% 83.0% 92.5%SG&A Expenses (3.1) (3.4) (4.3) (2.1) (3.8) (4.4) (4.2) (3.1) (4.3) (4.7) (4.3) (3.3)

QoQ growth -40.4% 9.2% 26.3% -51.2% 81.7% 16.5% -4.9% -25.8% 40.0% 7.7% -7.1% -23.1%As a % of Revenues 7.0% 7.0% 8.2% 4.1% 6.9% 9.3% 8.4% 6.3% 12.6% 9.4% 7.5% 5.1%EBITDA 2.7 2.1 1.6 1.9 3.5 3.6 4.2 0.3 1.0 4.0 5.5 1.6

QoQ growth 250.6% -24.0% -21.0% 15.0% 87.3% 0.8% 16.5% -94.0% 305.5% 296.9% 37.0% -71.7%YoY growth -0.3% -17.0% -31.2% 142.1% 29.3% 71.5% 152.9% -86.7% -71.3% 13.0% 32.8% 524.6%Margin % 6.2% 4.3% 3.2% 3.7% 6.4% 7.5% 8.4% 0.5% 2.9% 8.1% 9.5% 2.4%Depreciation & Amortization (0.3) (0.3) (0.1) (0.2) (0.3) (0.3) (0.3) (0.3) (0.3) (0.3) (0.3) (0.3) EBIT 2.5 1.8 1.6 1.7 3.3 3.3 3.9 (0.0) 0.7 3.7 5.2 1.3 Net Interest Income/Loss (0.8) (1.3) 5.6 (3.9) (0.4) (0.5) (0.4) (0.6) (0.3) (0.7) (0.7) (0.7) Net Investment Income/Loss 0.2 2.3 1.0 1.5 1.2 2.1 1.1 0.2 2.0 2.0 2.0 2.0 Other Non-Operating Items 0.1 (1.2) 0.0 0.5 0.0 (0.0) (0.5) 0.3 0.4 (0.1) (0.1) (0.1) Total Non-Operating Items (0.4) (0.2) 6.6 (1.9) 0.8 1.6 0.1 (0.2) 2.1 1.2 1.2 1.2 Taxes - - - (0.7) (0.2) (0.2) (0.2) (0.7) (0.3) (0.5) (0.5) (0.5) Net Profit After Taxes 2.1 1.6 8.2 (0.9) 3.9 4.7 3.8 (0.9) 2.6 4.4 5.9 2.0

NPAUIMI 2.1 1.6 8.2 (0.9) 3.9 4.6 3.8 (0.8) 2.5 4.3 5.8 1.9 QoQ growth N/M -20.2% 397.4% N/M N/M 19.9% -18.7% N/M N/M 70.2% 34.3% -67.8%YoY growth 33.6% -1.6% 553.0% N/M 88.2% 182.9% -53.8% N/M -34.1% -6.5% 54.5% N/MMargin % 4.6% 3.4% 15.8% -1.7% 7.0% 9.8% 7.6% -1.7% 7.4% 8.7% 10.0% 2.9%


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


32

VI. Projection Assumptions & Growth Drivers Total Revenues

Total revenues are forecasted to grow at a 6-year CAGR of 14% to EGP436.1mn by 2015, stimulated by the newly-launched River and Land Transport & Logistics LoB –– which is expected to contribute 37% of total revenues by 2015.

Current LoB’s Revenues

Revenues from the current LoBs are projected to grow at a 6-year CAGR of 5% to EGP274.9mn by 2015. We attribute this growth to the anticipated demand for infrastructure projects, which currently represent 27% of total revenues.

Adding High-Margin LoB

i) River Ports: This LoB is expected to start generating revenues of EGP22mn by 2012. We project EBITDA margin for this LoB to reach 77.3% in 2012, and then to rise 81% by 2015. Egytrans will build and operate a River Containers Terminal in Qalioubeya governorate covering a total area of 65k sqm at an expected investment cost of EGP170mn.

ii) River Transport: River Transport LoB revenues are expected to appear by 2012, amounting to EGP30mn that year. The LoB’s EBITDA margin is expected to hit 71.7% in 2012, and to reach 78.2% by 2015. Egytrans plans to launch this LoB with a fleet of 6 container barges by 2012 (with a total capacity of 44.4k TEUs), and to bring the fleet to18 barges by 2015 (with a total TEU capacity of 136k).

Figure 37 | Egytrans Projected Barge Fleet and Capacity

0

2

4

6

8

10

12

14

16

18

20

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2012 F 2013 F 2014 F 2015 F

Barges Capacity (TEUs)

Source: ETRS

iii) Land Transport: The Land Transport LoB’s revenues are forecasted at EGP20mn in 2011, then to grow by an average of 11% annually to reach EGP30.8mn in 2015. On the margin front, EBITDA margin is expected to record 60% in 2011 and advance to 64.3% in 2015. Egytrans is expected to add an initial fleet consisting of 10 trucks with a capacity of 30-45 tons each. The company plans to grow this fleer to 80 trucks in the future.

iv) Global Depot Solutions (GDS): The company’s revenues are projected at EGP2.6mn in 2011, then to grow by an average of 18% annually to reach EGP5.1mn in 2015. Egytrans holds a 75% stake in GDS Company.

A 6-year CAGR of 14% forecasted for total revenues

Entering the high-margin River Transport & Logistics business will be the key growth driver for Egytrans


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


33

EBITDA Margin

Overall, EBITDA margin is set to improve significantly over the forecast period as a result of the addition of the new, high-margin LoB. It is expected to record 5.8% in 2010, then to increase to 33% by 2015 (vs. the 5.7% achieved in 2009).

Interest Expense

As a result of the high anticipated borrowings necessary to finance parts of the EGP530mn plan, interest expense is expected to increase from 2010 onwards to finance both the plan and expansions within the company’s existing LoBs. Interest expense is estimated at EGP3.6mn in 2010, then to increase to a high of EGP21.8mn by 2012 before decreasing gradually to EGP8.4mn by 2015.

Net Profits

Net profits are projected to grow at a 6-year CAGR of 45% to EGP108.4mn in 2015 as a result of the addition of the new, high-margin LoB to the company’s operations. We expect net profits to decline slightly in 2011 as a result of the interest expense of EGP19.3mn derived from the debt utilization needed to meet the required for the new LoB. 2012 will then be the key year in terms of net profit growth, containing both the inauguration of the River Containers Terminal and the launching of the River Transport LoB.

EPS

EPS growth is forecasted at a 6-year CAGR of 23% (vs. a prior 5-year CAGR of 32%) to reach EGP6.95 by 2015, based on 15.6mn shares (the first tranche of the EGP200mn capital increase) and taking into consideration the second tranche (amounting to 10mn shares), which we expect to be called during 2011.

Figure 38 | Overall Forecasted Performance (EGPmn)

0%

5%

10%

15%

20%

25%

30%

35%

0

50

100

150

200

250

300

350

400

450

500

2009 A 2010 F 2011 F 2012 F 2013 F 2014 F 2015 F

Revenues EBITDA Net profitsEBITDA margin Net profit margin


Dividend Policy

According to management guidance, after paying 2009 dividends Egytrans has decided not to pay any dividends till 2014 (the end of expensing its capex for the new LoB).


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


34

Capex

Egytrans Capex is forecasted at EGP530mn to be expensed over the next 5 years. The River Transport LoB will hold the lion’s share of EGP300mn, representing a 57% of the total. The River Ports LoB will follow with 32% (EGP170mn), while the remaining balance will be earmarked for the Land Transport LoB and GDS Company.

Figure 39 | Planned Capex schedule by LoB Year

2010 2011 2012 2013 2014River Ports 170 70 60 0 0 40 170River Transport 300 10 150 45 45 50 300Land Transport 50 0 50 0 0 0 50Global Depot Solutions 10 10 0 0 0 0 10Total 530 90 260 45 45 90 530

LoB Capex (EGPmn)

Total (EGPmn)


Finance

Egytrans intends to implement a mixed strategy to finance its future EGP530mn plan. It will capitalize on equity, debt, and internal finance. The following table illustrates the methods of financing the company’s for the new LoB.

Figure 40 | Capex Financing Sources by LoB (EGPmn) Financing Method

Equity Debt InternalRiver Ports 170 65 65 40River Transport 300 85 85 130Land Transport 50 25 25 0Global Depot Solutions 10 10 0 0Total 530 185 175 170

LoB Capex

Source: ETRS

Capital Increase

In line with Egytrans’ management guidance, we account for the remaining EGP100mn capital increase to be called during 2011.


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


35

VII. Valuation & Recommendation A. DCF valuation

We extended our projections till 2020 to assess the full effect of the capex during the forecasted years. We used the CAPM as a method for the DCF valuation by assigning a risk free rate of 10%, an equity risk premium of 7% and a beta of 1.04. We determined a WACC of 16.7% with a perpetual growth rate of 5%. Meanwhile, we add a market value of EGP18mn for the company’s investments in its both affiliates, bearing in mind its stake of 30% in both Scan Arabia and Barwill Egytrans shipping agencies. Thus, we reached a shareholders’ value of EGP324.6mn, yielding a LTFV of EGP20.8/share with a 53% upside potential from current market price.

Figure 41 | DCF Valuation Summary (EGP 000s)


B. Multiples valuation PER Value

Egytrans is currently traded below its local and global peers’ average of 22.8x at a one-year forward PER of 14.5x. This yields a fair value of EGP21.3/share, 57% over the current market price.

Figure 42 | Egytrans 2010 forecasted PER Multiple vs. Local & Global Peers

6.110.210.711.311.511.8

14.516.517.217.8

21.222.8

25.326.227.628.429.9

33.735.3

69.4

0 20 40 60 80

Alexandria Containers HandlingLogistics Corp.

All America Latina LogisticaTegma Gestao Logistica

Integrated LogisticsSutton Harbour Holding PLC

EgytransLog-in Logistica Intermodal

Kromi Logistik AGSouth Port New Zealand

Globus Maritime LtdAverage

Rand LogisticsTeco Maritime ASA

Gulf Navigation HoldingP.A.M. Transportation Services

USA TruckCovenant Transport GRP-CL

GD Express Carrier BHDCanal Shipping Agencies

Source: Bloomberg and CICR forecasts

A 53% upside potential for the LTFV

Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Infin.NOPAT 7,166 9,276 22,756 56,164 73,633 91,893 107,166 126,519 147,052 167,440 191,493+Depreciation & Amortization 1,185 2,817 8,854 18,767 21,000 24,343 26,764 27,165 27,573 27,986 28,406-Net Plant Expenditure (91,084) (261,272) (48,885) (49,374) (94,867) (8,724) (8,855) (8,988) (9,122) (9,259) (9,398)-Change W.I. 6,609 (1,241) (2,022) (383) 108 (7,329) (7,974) (8,639) (9,217) (10,147) (11,183)=Free Cash Flow to the Firm (76,123) (250,420) (19,296) 25,175 (126) 100,183 117,102 136,057 156,286 176,021 199,318 1,796,001

Corporate Value 334,609- Total Debt 31,002+ Cash & Cash Equivalents 3,204+ Investments 18,000- Minority Interest 164

Shareholders Value 324,647

# Of Shares 15,606

LTFV/Share 20.8Upside/Downside Potential 53.0%

ETRS 2010 PER is lower than the peers’ average


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


36

Price/Revenues Value

Likewise, Egytrans is traded at 2010 Price/Revenues multiple of1x, compared to its local and global peers’ average of 2x. We obtained a fair value of EGP27/share, yielding 99% upside potential.

Figure 43 | Egytrans 2010 forecasted P/R Multiple vs. Local & Global Peers

0.4

0.4

0.7

1.0

2.0

2.0

2.2

2.6

3.6

4.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

P.A.M. Transportation Services

USA Truck

Rand Logistics

Egytrans

Average

Fair Star Heavy Transport

Globus Maritime Ltd

Euroseas Ltd

Alexandria Containers Handling

All America Latina Logistica

Source: Bloomberg and CICR forecasts

C. Technical Analysis Prepared by: MOHAMED EL-ZAYAT, MSTA, CFTe

[email protected]

The chart above is a weekly chart for ETRS stock. Despite the recent weakness, medium term outlook remains bullish with the stock staying well above 20-19 cluster support. Momentum decline suggests that further sideways trading could be seen but downside is expected to be contained by the aforementioned level and bring another rise toward 24.50 short term target then 32 medium term target. Short term stop loss should be positioned below 19 while medium ones should be set stop loss below 15.50.

Figure 44 | ETRS Price Movement and Technical Target Prices Weekly QETRS.CA 10/29/2006 - 7/11/2010 (CCS)

Vol, QETRS.CA, Last Trade5/2/2010, 224,023

VolumeEGP

Support 19

Major resistance 32

Major support 15.50

Short term target 25

Cndl, QETRS.CA, Last Trade5/2/2010, 22.14, 23.1, 20.22, 20.35

PriceEGP

.12

8

12

16

20

24

28

Mom, QETRS.CA, Last Trade(Last), 145/2/2010, -3.34

ValueEGP

.12

-10

-5

0

5

N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J JQ4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10

Source: Reuters

Price/Revenues multiple for 2010 yielded a value of EGP27/share

Resistance levels:

** 21.50

* 23

*** 24.50

Support levels:

*** 20

*** 19

** 18

Resistance/Support tables rank importance of levels by stars *,**, to *** being the most important.


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


37

D. Target Price & Recommendation

We reached a target price of EGP23.4/share, indicating a potential growth of 72% over the current market price. Hence, we recommend the stock as a Strong Buy with a High Risk rating.

In order to reach our target price, we assigned a 25% weight for each of the aforementioned valuation methods.

Figure 45 | Target Price Calculation

Valuation Method Assigned Weight Fair Value W * PLTFV 25% 20.8 5.2P/E multiple 25% 21.3 5.3P/R multiple 25% 27.0 6.8Technical Target Price 25% 24.5 6.1Target Price 100% 23.4Upside/Downside Potential 72%Market Price 13.60


We reached a TP of EGP23.4/share, and hence issue a Strong Buy recommendation


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


38

VIII. Catalysts & Risks to Recommendation A. Catalysts

Despite the global crisis, Egytrans will pay a considerable cash dividend of EGP2/share to shareholders as of April 21st, 2010. This implies a 14.7% dividend yield.

The company’s plans to enter the untapped River Transport LoB are considered a major catalyst for buying the stock.

The GoE’s efforts to develop transport along the Nile River (due to the time and cost savings as well as its safety and lower CO2 emissions).

Given its speculative nature and based on technical indicators, the stock may rise to hit EGP24.5 in the short term and to a high of EGP32 in the medium term.

The GoE’s EGP200bn export plan might lead to significant growth for the sector as a whole - and Egytrans in particular - given its mostly integrated supply chain.

The GoE streamlining regulatory process as well as developing and offering river ports.

B. Downside Risks

Any obstacle or default in sourcing the required debt to finance the EGP530mn planned may negatively impact Egytrans’ future business plan, considered the key driver for its forecasted growth. Hence, we assigned a High Risk rating for the stock.

Slower-than expected global economy and trade recovery.

Any government intervention leading to delays in developing the River Transport sector’s infrastructure.


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


39

IX. Glossary of Terms Cargo: The freight (goods - products - commodities) that are carried by a ship, barge, train, truck or plane. Container: A box made of aluminium, steel or fibreglass used to transport cargo by ship, rail, truck or barge. Common dimensions are 20' x 8’ x 8' (called a TEU or twenty-foot equivalent unit) or 40' x 8' x 8', called an FEU. In the Container industry, containers are usually simply called boxes. Container terminal: A specialized facility where ocean container vessels dock to load containers, equipped with cranes with a safe lifting capacity of 35 - 40 tons, with booms having an outreach of up to 120 feet in order to reach the outside cells of vessels. Most such cranes operate on rail tracks and have articulating rail trucks on each of their four legs, enabling them to traverse along the terminal and work various bays on the vessel and for more than one crane to work a single vessel simultaneously. Most terminals have direct rail access and container storage areas, and are served by highway carriers. Containerization: The technique of using a container to store, protect and handle cargo while it is in transit. This shipping method has both greatly expedited the speed at which cargo is moved from origin to destination and lowered shipping costs. Draught (Draft): The depth of water necessary to float a ship, or the depth a ship sinks in water. Dry bulk: Minerals or grains stored in loose piles moving without mark or count.

Freight forwarder: An individual or company that prepares the documentation and coordinates the movement and storage of export cargoes. General cargo: Consists of both containerized and break bulk goods, in contrast to bulk cargo. General cargo operations produce more jobs than bulk handling. Isotank: It is the isolated tankers which carries different types of liquid cargo i.e. petrochemicals, dairy products, water. Multimodal Transport: Is the transportation of goods and commodities that carried out through different modes of transport and organized by a single operator, it is also known as “door-to-door” services. Nile Basin countries: The Nile Basin consists of 10 countries: Egypt, Sudan, Ethiopia, Eritrea, Tanzania, Rwanda, Burundi, Democratic Republic of Congo, Uganda and Kenya. Ro/Ro: Short for Roll on/Roll/off. A Ro/Ro ship is designed with ramps that can be lowered to the dock so cars, buses, trucks or other vehicles can drive into the belly of the ship, rather than be lifted aboard. A Ro/Ro ship, like a container ship, has a quick turnaround time of about 12 hours. Terminal: The place where cargo is handled and also called a wharf. Terminal operator: A company that operates cargo handling activities on a wharf. A terminal operator oversees unloading cargo from ship to dock, checking the quantity of cargoes versus the ship’s manifest (list of goods), transferring of the cargo into the shed, checking documents authorizing a trucker to pick up cargo, overseeing the loading/unloading of railroad cars, etc. Trans-shipment: The unloading of cargo at a port or point where it is then reloaded, sometimes into another mode of transportation, for transfer to a final destination. Warehouse: A place in which goods or merchandise are stored.

Wharf: The place at which ships tie up to unload and load cargo. The wharf typically has front and rear loading docks (aprons), a transit shed, open storage areas, truck bays, and rail tracks.


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


40

X. Financial Statements Balance Sheet (EGPmn) 2007 A 2008 A 2009 A 2010 F 2011 F 2012 F 2013 F 2014 F 2015 FAssetsCash & Cash Equivalent 2.8 5.2 4.3 16.6 4.7 24.2 7.1 11.9 65.4Net Receivables 33.6 32.4 35.6 31.7 34.3 37.0 38.7 40.3 45.6Total Inventory 31.0 30.8 29.6 26.9 25.7 25.3 24.3 22.9 25.2Advance Payment 0.2 0.5 0.2 0.6 0.6 0.6 0.7 0.7 0.8Other Trading Assets 7.9 7.9 13.5 13.5 13.5 13.5 13.5 13.5 13.5Other Current Assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Total Current Assets 75.6 76.9 83.3 89.3 78.9 100.7 84.3 89.3 150.5Net Plant 14.2 14.0 16.6 106.5 364.9 405.0 435.6 509.4 493.8Long-Term Investments 1.9 1.9 1.5 1.5 1.5 1.5 1.5 1.5 1.5Other Trading Non-Current Assets 1.7 1.2 1.8 1.8 1.8 1.8 1.8 1.8 1.8Other Non-current Assets 24.8 28.0 30.7 31.5 35.9 46.0 53.6 60.1 66.3Intangibles 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3Total Assets 120.5 124.2 136.1 233.0 485.4 557.3 579.1 664.4 716.2

Liabilities & Net WorthShort-Term Debt 28.3 6.2 6.0 30.9 167.4 189.5 138.6 134.2 72.9CP of Long Term Debt 3.0 4.9 4.5 0.0 0.0 0.0 0.0 0.0 0.0Accounts Payable 2.9 2.8 2.8 2.8 3.0 3.3 3.5 3.8 4.0Accrued Expenses 0.5 0.6 0.2 0.6 0.6 0.7 0.7 0.8 0.8Down Payments 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Taxes Payable 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Dividends Payable 1.8 0.0 13.9 0.0 0.0 0.0 0.0 0.0 0.0Other Spontaneous Finance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Other Current Liabilities 6.8 6.9 10.2 10.5 12.0 15.4 17.9 20.0 22.1Total Current Liabilities 43.4 21.4 37.7 44.8 183.0 208.8 160.7 158.8 99.9Total Long-Term Debt 13.7 29.2 25.2 0.0 0.0 0.0 0.0 0.0 0.0Other Non-Current Liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Long-Term Spontaneous Finance 1.8 2.1 2.3 2.3 2.3 2.3 2.3 2.3 2.3Total Liabilities 58.9 52.7 65.2 47.2 185.3 211.1 163.1 161.1 102.3Deferred Taxes 2.4 2.4 2.6 2.6 2.6 2.6 2.6 2.6 2.6Other Provisions 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Minority Interest (0.1) (0.0) 0.1 0.4 0.7 1.6 3.0 4.8 7.0Net Worth 59.3 69.2 68.2 182.8 296.8 341.9 410.4 495.9 604.3Total Liab. & Net Worth 120.5 124.2 136.1 233.0 485.4 557.3 579.1 664.4 716.2


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


41

Income Statement (EGPmn) 2007 A 2008 A 2009 A 2010 F 2011 F 2012 F 2013 F 2014 F 2015 FRevenues 150.2 195.5 201.5 207.5 236.3 302.6 353.0 395.1 436.1Cost of Revenues (129.0) (174.4) (174.5) (178.7) (187.6) (205.4) (221.8) (238.5) (255.3)Gross Profit 21.2 21.2 27.0 28.8 48.7 97.1 131.1 156.5 180.7SG&A (12.8) (12.8) (15.5) (16.7) (21.6) (27.0) (31.0) (33.9) (36.9)EBITDA 8.4 8.3 11.5 12.1 27.2 70.1 100.2 122.6 143.8Depreciation & Amortization (1.1) (0.8) (1.1) (1.2) (2.8) (8.9) (18.8) (21.0) (24.3)EBIT 7.3 7.5 10.4 10.9 24.3 61.3 81.4 101.6 119.5Interest Expense (4.5) (0.3) (2.0) (3.6) (19.3) (21.8) (15.9) (15.4) (8.4)Net Provisions (0.5) (0.8) (0.3) (0.5) (0.5) (0.5) (0.5) (0.5) (0.5)Interest Income 0.0 0.1 0.0 1.1 1.9 2.6 2.8 1.1 1.9Investment Income 3.3 5.0 4.5 8.0 8.8 9.1 9.4 9.7 10.0Other Non-Operating Income 0.5 0.1 0.0 0.5 0.5 0.5 0.5 0.5 0.5Other Non-Operating Expenses 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0EBT 6.0 11.7 12.7 16.5 15.8 51.2 77.6 96.9 122.9Taxes (0.7) (0.7) (1.3) (1.7) (1.6) (5.1) (7.8) (9.7) (12.3)NPAT 5.4 11.0 11.5 14.9 14.3 46.1 69.9 87.3 110.6Minority Interest (0.0) (0.0) (0.0) (0.3) (0.3) (0.9) (1.4) (1.7) (2.2)Extraordinary Items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Attributable Profits 5.4 11.0 11.4 14.6 14.0 45.2 68.5 85.5 108.4

Dividends 0.0 0.0 (11.2) 0.0 0.0 0.0 0.0 0.0 0.0

Cash Flow (EGPmn) 2007 A 2008 A 2009 A 2010 F 2011 F 2012 F 2013 F 2014 F 2015 F

NOPAT 7.2 7.2 9.3 9.3 22.8 56.2 73.6 91.9 107.2Depreciation & Amortization 1.1 0.8 1.1 1.2 2.8 8.9 18.8 21.0 24.3Gross Cash Flow (COPAT) 8.3 8.0 10.4 10.5 25.6 65.0 92.4 112.9 131.5Working Investment Change (0.8) 1.0 (2.0) 6.6 (1.2) (2.0) (0.4) 0.1 (7.3)Other Current Items (2.8) 0.6 (3.0) 0.3 1.5 3.4 2.6 2.1 2.1Cash After Current Operations 4.8 9.6 5.5 17.4 25.8 66.4 94.6 115.1 126.3Financing Payments (8.9) (3.3) (6.9) (8.1) (19.3) (21.8) (15.9) (15.4) (8.4)Cash Before Long Term Use (4.1) 6.3 (1.4) 9.3 6.5 44.6 78.6 99.7 117.9Net Plant Change (0.2) (0.7) (3.6) (91.1) (261.3) (48.9) (49.4) (94.9) (8.7)FCFF 4.6 8.9 1.8 (73.7) (235.5) 17.5 45.2 20.3 117.5Others 3.7 2.1 2.2 8.8 6.9 2.2 5.0 4.9 6.1Cash Before Financing (0.7) 7.7 (2.8) (73.0) (247.9) (2.2) 34.3 9.7 115.3Short-Term Debt (2.7) (22.1) (0.2) 24.9 136.5 22.1 (50.9) (4.4) (61.2)Long-Term Debt 1.7 20.4 0.5 (25.2) 0.0 0.0 0.0 0.0 0.0Net Worth 2.1 (1.1) (1.3) 99.7 99.7 (0.9) (1.4) (1.7) (2.2)Grey Area (0.3) (0.8) 0.0 (0.5) (0.5) (0.5) (0.5) (0.5) (0.5)Minority Interest 0.0 0.0 0.2 0.3 0.3 0.9 1.4 1.7 2.2Dividends (0.3) (1.8) 2.7 (13.9) 0.0 0.0 0.0 0.0 0.0Change in Cash (0.2) 2.4 (0.9) 12.3 (11.9) 19.5 (17.1) 4.8 53.6


25th May 2010

INITI

ATIO

N O

F C

OVE

RAG

E


42

A = Actual F = Forecasts


Fact Sheet 2007 A 2008 A 2009 A 2010 F 2011 F 2012 F 2013 F 2014 F 2015 F

ROE 9.1% 15.9% 16.8% 8.0% 4.7% 13.2% 16.7% 17.2% 17.9%ROS 3.6% 5.6% 5.7% 7.0% 5.9% 14.9% 19.4% 21.6% 24.9%ROA 4.5% 8.8% 8.4% 6.3% 2.9% 8.1% 11.8% 12.9% 15.1%ROIC 6.9% 6.5% 8.9% 4.3% 4.9% 10.5% 13.3% 14.5% 15.7%Gross Margin 14.1% 10.8% 13.4% 13.9% 20.6% 32.1% 37.2% 39.6% 41.4%EBITDA Margin 5.6% 4.3% 5.7% 5.8% 11.5% 23.2% 28.4% 31.0% 33.0%ATO 1.2 1.6 1.5 0.9 0.5 0.5 0.6 0.6 0.6WI/ Sales 42.1% 31.5% 31.9% 27.8% 24.9% 19.3% 16.7% 14.9% 15.2%ALEV 2.0 1.8 2.0 1.3 1.6 1.6 1.4 1.3 1.2Liabilities/Net Worth 1.0 0.8 1.0 0.3 0.6 0.6 0.4 0.3 0.2Current Ratio 1.7 3.6 2.2 2.0 0.4 0.5 0.5 0.6 1.5

Per-Share Ratios 2007 A 2008 A 2009 A 2010 F 2011 F 2012 F 2013 F 2014 F 2015 FShare Price 13.60 13.60 13.60 13.60 13.60 13.60 13.60 13.60 13.60No. Of Shares ('000) 5,606 5,606 5,606 15,606 15,606 15,606 15,606 15,606 15,606 New No. of Shares ('000) 15,606 15,606 15,606 15,606 25,606 25,606 25,606 25,606 25,606

EPS 0.96 1.96 2.04 0.94 0.90 2.90 4.39 5.48 6.95Diluted EPS 0.34 0.70 0.73 0.94 0.55 1.76 2.67 3.34 4.23DPS 0.00 0.00 2.00 0.00 0.00 0.00 0.00 0.00 0.00Revenues/Share 26.78 34.88 35.93 13.30 15.14 19.39 22.62 25.31 27.94 Capacity/Share N/A N/A N/A N/A N/A N/A N/A N/A N/ABV/Share 10.58 12.35 12.16 11.71 19.01 21.91 26.30 31.78 38.72 Gross Cash Flow/Share 1.49 1.42 1.86 0.67 1.64 4.17 5.92 7.23 8.43FCFF/Share 0.82 1.60 0.33 (4.72) (15.09) 1.12 2.90 1.30 7.53EBITDA/Share 1.50 1.49 2.05 0.78 1.74 4.49 6.42 7.86 9.21EV/Share 21.1 19.9 19.2 14.5 24.0 24.2 22.0 21.4 14.1

Multiples 2007 A 2008 A 2009 A 2010 F 2011 F 2012 F 2013 F 2014 F 2015 FPER 14.2 6.9 6.7 14.5 15.2 4.7 3.1 2.5 2.0Diluted PER 39.4 19.3 18.6 14.5 24.9 7.7 5.1 4.1 3.2Dividend Yield 0.0% 0.0% 14.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%P/Revenue 0.5 0.4 0.4 1.0 0.9 0.7 0.6 0.5 0.5EV/Revenues 0.8 0.6 0.5 1.1 1.6 1.2 1.0 0.8 0.5P/COPAT 9.2 9.6 7.3 20.3 8.3 3.3 2.3 1.9 1.6EV/COPAT 14.2 14.0 10.3 21.7 14.7 5.8 3.7 3.0 1.7P/FCFF 16.7 8.5 41.3 -2.9 -0.9 12.1 4.7 10.5 1.8EV/FCFF 25.9 12.4 58.4 -3.1 -1.6 21.6 7.6 16.5 1.9P/EBITDA 9.1 9.1 6.6 17.5 7.8 3.0 2.1 1.7 1.5EV/EBITDA 14.1 13.4 9.4 18.7 13.8 5.4 3.4 2.7 1.5P/BV 1.3 1.1 1.1 1.2 0.7 0.6 0.5 0.4 0.4

Contacts and Disclaimer:

CI CAPITAL RESEARCH

Mark Rorison | Group Director, Head of Research [email protected]

Amr Hussein Elalfy, CFA | Director

[email protected] Mona Mansour | Director

[email protected]

■■

CI CAPITAL SECURITIES BROKERAGE (EGYPT & UAE)

Amr Mostafa | Managing Director

[email protected]

DYNAMIC SECURITIES

Ahmed Roushdy | Managing Director [email protected]

DISCLAIMER

The information used to produce this market commentary is based on sources that CI Capital Research (CICR) believes to be reliable and accu-rate. This information has not been independently verif ied and may be condensed or incomplete. CICR does not make any guarantee, representa-tion or warranty and accepts no responsibility or liability to the accuracy and completeness of such information. Expression of opinion contained herein is based on certain assumptions and w ith the use of specific f inancial techniques that reflect the personal opinion of the authors of the com-mentary and is subject to change without notice. It is acknowledged that different assumptions can always be made and that there is a wide choice of techniques that can be adopted each of which can lead to a different conclusion. Therefore, all that is stated herein is of an indicative and infor-mative nature as forward-looking statements, projections, and fair values quoted may not be realized. Accordingly, CICR does not take any re-sponsibility for decisions made on the basis on the content of this commentary. This commentary is made for the sole use of CICR’s customers and no part or excerpt of its content may be redistributed, reproduced or conveyed in any form, w ritten or oral, to any third party without the prior written consent of CICR. This commentary does not constitute a solicitation or an offer to buy or sell securities.

CI CAPITAL HOLDING

8, Nadi El-Seid Street, Third Floor Dokki, Giza

Egypt

Reuters pages: COIW, COIX, COIY, and COIZ

Bloomberg page: COIB <GO>

For more information, please contact CI Capital Research on +2

(02) 33 38 62 59, send e-mail to [email protected] or visit our website at www.cich.com.eg

RATING SYSTEM In February 2009, CI Capital Research (CICR) launched a new rating system to give analysts more freedom to be market responsive. This is to make one element of our research more dynamic, namely the advertising of target prices and recommendations. What we did not change is our assessment of the Long Term Fair Value (LTFV), nor have we stopped our detailed industry and company research. What we did is changing the target price to trade in the balance of where a share should trade and where we think it w ill trade. LTFV: As before we continue to estimate a fundamental valuation, largely DCF and/or NAV based. Target Price: The target price, which is not necessarily the LTFV, is where the analyst, given all (qualitative as well as financial) information avail-able, thinks the share price can get to w ithin the next 3-12 months. This can be changed at any time on changing facts, and perceptions. Recommendations: Our new rating system falls out from the total return relating to the share price performance to the target price, and including any distributions as may not be included in the target price calculation. This is shown in the table below, and to be BUY must return over 19%, an arbitrary hurdle rate we think reasonable given prevailing interest rates and risks. (Please see table below.) Recommendation structure: Change to Target Price

Strong BUY > 30% Strong Conviction BUY > 20% < 30% Hold > 10% < 20% Underw eight > 0% < 10% SELL < 0%

Documents

EGYPTIAN TRANSPORT & INITIATION OF COVERAGE …ir.egytrans.com/pdf/CI Capital Research.pdf · The Egyptian Transport and Commercial Services Company (Egytrans) ... Egytrans’ revenues,