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HC: Arabian Cement shows agility amid changing industry dynamics

Posted on by Marwa Nakhla

In a recent report, HC Brokerage shed the light on the cement industry in Egypt, specifically on Arabian Cement Company (ARCC) where it focused on the local industry switching dynamics and the company’s efforts to revamps its strategy to enhance financial resilience

  • Macroeconomic and industry developments call for disciplined pricing and tighter cost management

  • ARCC is positioned to meet CBAM export compliance while hedging cost risks, improving its fundamentals

Local industry switching dynamics: In 2025, Portland cement prices surged c80–85% above the 2024 average of EGP2,455/ton, supported by c14% y-o-y consumption growth in 10M25 to 44.2m tons and a c6% y-o-y decrease in exports to 15.9m tons, pushing sector utilization above c90% of licensed c76m-ton capacity. To contain prices, the Egyptian Competition Authority (ECA) in July 2025 permanently lifted local output quotas, while the Ministry of Trade and Industry ordered the restart of nine idled lines (seven due within a year, adding an average of c12.6m tons), halved license modification fees to EGP130/ton and offered two new cement licenses of 2m tons each. Despite partial normalization, cement prices remain supported by firm local demand, estimated at 53.7m tons in 2025e, and disciplined supply management, which optimizes the trade-off between capturing a higher domestic price premium, while meeting rising export demand, ensuring FX self-sufficiency, fuel-import flexibility, and reducing exposure to domestic and regulatory risks. We believe this pricing dynamics will be sustained, given the opportunity cost of allocating more sales domestically, which will be reflected in a local price premium, in our view. Moreover, we estimate that the cement sector has inelastic demand. Hence, a single producer cutting its price will enjoy a short-lived market share gain before competitors replicate the cut, lowering prices and distorting sector profitability. Accordingly, from a game-theory perspective and amid opaque cost structures and asymmetric supply behavior among market players, producers are better off aligning output with demand to preserve equilibrium and maintain visibility into their scheduled capex plans. However, other than demand, we expect prices to be more affected by improved cost dynamics and efficiencies, which would materialize gradually as ongoing capex in fuel diversification and operational optimization begins to yield results. While we view demand as broadly sustainable, its growth continues to lag capacity reactivation, reinforcing the need for strict cost discipline and efficiency-led competitiveness.

Local margins to normalize and exports to remain robust: Based on our analysis of macroeconomic and sector data, we estimate a potential minor price normalization at EGP3,600–3,620/ton in 2026e, on c1.0% y-o-y higher demand, factoring in expected higher costs, including the effect of higher diesel and gasoline prices, electricity price adjustments, FX volatility, and coal and petcoke forward price trend being in mild contango. We expect local cement demand to grow at a c2.2% CAGR over 2025–30e, averaging c53m tons, supported by inflation moderation, monetary easing, streamlined private building permits (despite some talks of lags at the governorates’ level and a noticed slowdown in real estate secondary market turnover), the execution of project backlogs, the government’s efforts to boost private investment, industrial expansion, and attract FDIs. We expect sector margins to normalize gradually over the medium term, particularly given its delayed cost pass-through cycle, which has historically constrained timely repricing in response to cost shocks or regulatory changes. In our view, a stable and transparent industry regulatory environment is essential to reduce uncertainty and the need to maintain margin buffers. As for clinker and cement exports, in 2024, they reached 19.5m tons, with a mix of c38% cement and c62% clinker. In 10M25, export volumes declined c6% y-o-y to 15.9 tons, with the mix shifting to c59% cement and c41% clinker, driven by stronger demand from neighboring countries, especially for reconstruction, and growing opportunities in the EU and the US. Hence, we estimate that imposing a 30% export cap per company, as hinted at by the government, could lead to foregone export volumes among larger exporters, unless these volumes are absorbed by producers with lower export shares or later supported by additional capacity coming online or being reactivated. Looking ahead, optimizing logistics, maintaining cost efficiency, focusing on specialty and higher-margin products, and complying with the Carbon Border Adjustment Mechanism (CBAM) are key to boosting exports.

ARCC revamps strategy to enhance financial resilience: According to company data and its CEO’s interview with International Cement Review, ARCC is on track to achieve a new milestone in cost and export competitiveness through a planned multi-phase program that extends to 2030 to raise reliance and quality of alternative fuels (AF), including expanding the capacity of AF injection in both clinker lines, and investing in AF shredding facilities to reduce cost dependence on third-party suppliers. It began commissioning its hydrogen injection project, targeting a thermal substitution rate (TSR) of c55% by 2031. This project will enable ARCC to increase combustion efficiency, reducing the energy needed per ton of clinker, allowing an increase in AF use, achieving c8-9% savings in petcoke use, and cutting CO2 emissions by c130,000 tpa. The project payback period is 2–3 years, after which we expect gradual cost efficiency as production costs per Kg of hydrogen decrease over time and as potential longer-term scalability of hydrogen use shifts from a catalyst to a fuel input. ARCC increased its reliance on renewable energy, with its 24 MWh solar projects already covering c11% of its current power needs. Additional planned projects include waste heat recovery (WHR) and a cement mill optimizer to lower overall electricity consumption. Moreover, ARCC aims to advance the use of supplementary cementitious materials (SCMs) to reduce the clinker ratio in cement, using alternative raw materials to minimize limestone, planning to produce low-carbon calcined clay clinker and CEM III cement (with 50% ground granulated blast-furnace slag) upon completing a new cement silo project, and using AI technologies to optimize processes. These combined projects will enable the company to cut its CO2 emissions from production to 2.3m tons by 2031, down from 3.4m tons in 2023. We believe this decarbonization roadmap will strengthen ARCC’s operational and financial performances and largely hedge against margin vulnerabilities from rising costs and global competition. The company exports high-quality clinker to the EU and cement to neighboring countries, among others. Over 2025e–30e, we estimate ARCC total sales volumes to average 4.9m tons, with an export ratio averaging c42%. Revenue to grow by a CAGR of c3%, recording average EBITDA margin of c32% and net profit margin of c22%, normalizing to c27% and c19% by 2030e, respectively. By early 2026, final CBAM benchmarks are due, clarifying carbon cost exposure for EU importers. As ETS allowances phase out and demand shifts toward lower-carbon cement, we expect carbon costs to increasingly be passed through into pricing. Efficient producers are positioned to gain share and pricing power. According to our preliminary analysis of the CBAM rollout, we estimate ARCC could capture an average netback premium of EUR5.4/ton on exports to the EU, boosting margins by an average of c1.8% in 2026-30e. This estimate is based on available data, our assumptions and calculations, and remains subject to adjustment and refinement once actual benchmarks are finalized, released, and implemented, and as the actual weekly average auction price of EU ETS allowances evolves.

 

HC: The CBE could maintain rates at its upcoming meeting

Posted on by Marwa Nakhla

HC comments: ” Egypt’s external position is showing resilience with: (1) net international reserves (NIR) inched up c1% m-o-m with a c6% y-t-d increase to a record USD50.1bn in October; (2) Egyptian banks’ net foreign assets (NFA) position widening significantly by c16% m-o-m and 3.98x y-t-d to USD20.8bn in September; (3) Egypt’s worker remittances increasing c35% y-o-y in August to USD3.5bn, while declining c8% m-o-m, reflecting confidence in the FX liquidity in Egypt; (4) Egypt’s 1-year CDS declining remarkably to 176 bps from 379 bps at the beginning of the year; (5) and Suez Canal revenues starting to recover in November following the Gasa ceasefire. All these factors had helped Egypt’s exchange rate to appreciate by c8% y-t-d against the USD.”

” Domestically, the PMI index rose to 49.2 in October from 48.8 in September, on improved demand; however, still below the 50 benchmark. Consumer prices are cooling off, with an accumulated m-o-m increase of c11% in 10M25, compared to c22% accumulated m-o-m increases in 10M24, although we see inflation accelerating in November by 13.0% y-o-y and 0.9% m-o-m, due to the second round effects of the 17th October energy price hikes; however, we still see inflation following a downward trajectory thereafter. As for the attractiveness of Egypt’s carry trade, the latest 12M T-bills auction of 25.49% implies a positive real interest rate of 10.7% using our 12M inflation estimate of c11% (after deducting a 15% tax rate for European and US investors), suggesting that Egypt’s Carry Trade remains attractive. Meanwhile, the recent drop in Egypt’s CDS would lower the required yield on treasuries by foreign investors, which is not yet reflected in the recent treasury auctions, in our view. Although the CBE could maintain rates at its upcoming meeting, we believe that there is room for a 100 bps cut to stimulate the economy and the private sector, due to the parameters mentioned above and our view on inflation.”

HC: Eastern Company, rebuilds momentum

Posted on by Marwa Nakhla

  • Higher selling prices, volume recovery, and replenished inventory should enhance EAST’s operations over FY25/26–29/30e 

  • The ERP and investment income from UTC should also preserve EAST’s profitability and support cash dividend distribution                                                              

In a recent report, HC Brokerage presented their vision about Egypt’s consumers sector through an updated evaluation of Eastern Company where they expect the company’s profitability to be preserved.  

Pakinam El-Etriby, Consumers Analyst at HC commented that: “FX availability, tax brackets adjustment, and price hikes improved EAST fundamentals, in our view: After a challenging 2023 and part of 2024, EAST witnessed several positive developments. In 4Q22/23 and FY23/24, its local cigarette volumes significantly declined, primarily due to USD shortages and a hike in raw tobacco prices. At that time, Egypt experienced an FX crunch, which limited EAST’s ability to import raw tobacco. As a result, its volumes dropped by c46% y-o-y to 8,660m cigarettes in 4Q22/23 and c26% y-o-y to 43,158m cigarettes in FY23/24, from an average quarterly level of 16,306m cigarettes and yearly level of 64,919m cigarettes in the previous three years. However, by 4Q23/24, volumes began to recover following the 6 March EGP devaluation and the USD35bn Ras El Hekma deal, which improved USD liquidity at banks and raw materials importation. Volumes increased by c28% y-o-y in 4Q23/24, c70% y-o-y in 1Q24/25, and c33% y-o-y in 2Q24/25, yet declined by c19% q-o-q in 3Q24/25 due to Ramadan seasonality in March. On the pricing front, EAST increased its selling prices in November 2024 by c12%; however, not enough to restore its margins. And on 29 June, the government allowed an exceptional measure by increasing the retail price ceiling of the first tax bracket by c23% to EGP48.0/pack, allowing EAST to increase its retail prices on 18 July by c14%, and paving the way for it to revert to its higher pre-FX crunch margins. The government also approved increasing the local cigarette flat tax by only EGP0.50/pack, which is also positive given that the new flat tax of EGP5.00/pack represents 10.4% of the retail price of EGP48.0/pack, compared to the previous EGP4.50/pack flat tax, representing 11.6% of the retail price of EGP38.9/pack. EAST also increased its inventory coverage to 11.3 months in 3Q24/25 from 7.1 months in 2Q24/25 and 2.5 months in 1Q24/25, to mitigate inflationary pressures. The company sold its Factory Nine to United Tobacco Company (UTC) in July 2024 for EGP1.58bn, and hence it ceased to recognize leasing income from it starting 2Q24/25.

 

“We forecast EAST net income to grow at an FY26/27—29/30e CAGR of c14%, supporting future cash dividend distribution: In FY25/26e, we expect revenue to grow by c49% y-o-y to EGP58.7bn (c32% above our prior estimate), largely attributed to c33% y-o-y increase in local ex-factory prices to EGP17.1/pack (versus our previous estimate of EGP11.4/pack) while volumes increasing by c12% y-o-y to 64,831m cigarettes (slightly below our earlier estimate of 68,416m cigarettes). We assume a further c12% increase in the tax bracket in 2Q25/26e to EGP53.8/pack from EGP48.0/pack, assuming a retail price of EGP50.0/pack (ex-factory price of EGP18.7/pack) by 4Q25/26e. Over our FY26/27—29/30e forecast period, we expect revenue to grow at a CAGR of c10%, underpinned by volume and price growth of c2% and c8%, respectively, as volumes normalize and price increase momentum continues. We estimate FY25/26e GPM to expand by c9 pp y-o-y to c39%, supported by higher prices and ERP-related cost efficiencies, and average c44% over our FY26/27—29/30e forecast period. We forecast EBIT margin to increase by c10 pp y-o-y to c37% in FY25/26e, and average c42% over our FY26/27—29/30e forecast period. We anticipate EAST to record provisions of EGP2.43bn in FY24/25e for its early retirement program (ERP), assuming 2,000 employees opt in, resulting in annual savings of EGP529m, on our numbers, and expect it to stop provisioning for it post FY24/25e. As a result of the margins expansion, cost reduction, and hefty investment income from UTC, especially after it increased its selling prices in July, we expect EAST’s EPS to grow at a FY26/27—29/30e CAGR of c14%, supporting future cash dividend distribution. While EAST had consistently maintained a net cash position, it turned into a net debt position of EGP2.31bn as of 3Q24/25, parallel to its strategy to build up inventory to hedge inflationary pressures. However, assuming a drop in the cash conversion cycle (CCC) to nine months in 4Q24/25e from around 15 months in 3Q24/25, we expect EAST to start reverting to a net cash position of EGP8.10bn as of 4Q24/25e and remain in a net cash position until the end of our forecast period.” Pakinam concluded.

 

About HC Brokerage

HC Brokerage is an affiliate of HC Securities & Investment– a full-fledged investment bank providing investment banking, asset management, securities brokerage, research, and custody services. HC Brokerage is an Egyptian registered company and member of Egypt’s Financial Regulatory Authority (FRA), and its registered address is 34 Gezirat Al-Arab St., Mohandessin, Giza, Egypt, Dokki 12311

For further information, please contact:

Research@hc-si.com

 

HC: Palm Hills Development, Positioned for expansion

Posted on by Marwa Nakhla

  • New business ventures and regional expansions, including Abu Dhabi, to add value to the company and serve as catalysts

  • We forecast EGP423bn in collections over 2Q25–2032e as we expect PHDC to capitalize on its EGP679bn sales inventory

HC Brokerage issued their update about Egypt’s real estate sector through shedding the light on Palm Hills Development performance focusing on the company’s strategic decisions.

Mariam Elsaadany, real estate analyst at HC Brokerage commented that: “Strategic business decisions justify a more positive view: PHDC’s expansions extended beyond the Egyptian real estate market with a new focus on the GCC, including the newly announced Abu Dhabi project, along with potential expansions in Saudi Arabia’s real estate, commercial, and educational sectors and Egypt’s educational and hospitality sectors. These new opportunities offer value and act as stock price catalysts, in our view, as the company joins other Egyptian real estate developers in capturing a share of a lucrative GCC market. Additionally, PHDC’s Egyptian real estate business grew significantly with its launch of Hacienda Heneish and Hacienda Waters on the North Coast in 2024, and a management agreement for Jirian on the Nile Delta extension in 2025. Of the company’s EGP151bn of FY24 sales, c63% were generated from the North Coast (EGP95.1bn), with some EGP82.4bn of inventory remaining in the two projects, on our numbers. The success builds on increased demand for the North Coast following the Ras El Hekma investment deal announced in February 2024 and strengthens PHDC’s position as a major North Coast developer. PHDC expanded its hospitality exposure in 2024 to 1,262 rooms by adding around 200 rooms through an agreement with Marriott International to launch the 150-room Ritz Carlton Residences Hotel in West Cairo and increasing its stake in Maccor Hotels to c70% and targets adding 4,000 new rooms over the coming five years. Also, PHDC increased its exposure to Egypt’s education sector with the acquisition of c33% of Taaleem Management Services (TALM EY), diversifying its revenue stream and increasing its recurring income businesses. The company’s announcement to develop a 1.87m sqm plot in Abu Dhabi with Wave Seven triggers a rerating in our view, due to the project’s location, expected selling price, exposure to a USD-pegged currency, and low tax rate. The project directly faces the iconic Saadiyat Island near Yas Island and Al Reem Island and will be executed through PHD North Jubail Property Development Company, a fully owned subsidiary of Palm Hills Developments. Additionally, PHDC’s announced partnership with Saudi Dallah Al-Baraka Holding Company (DBHC) includes establishing a company with a 60%/40% ownership structure to develop several integrated mixed-use urban projects in different regions of the Kingdom is a major step. PHDC also plans to invest around USD300m in Saudi education developments in 2025 with local partners, USD300m in residential and commercial projects, and is working with a local joint venture (JV) to open 15 schools in cities including Riyadh and Jeddah, its CEO said.

“Despite lower affordability in Egypt, we still expect a decent sector performance on North Coast sales, price increases, relaxed payment terms, and regional expansion: We believe developer sales in 2025e will be driven by North Coast sales, and relaxed payment terms, while ventures into the hospitality segment, along with GCC expansions, should bode well for Egyptian real estate players. We expect developers to start reaping the benefits of Ras El Hekma as early as this year with Modon Holding’s announcement of launching the first 12,000-feddan phase of the mega-project. We see little concern of construction cost overruns during the short-medium term, provided limited currency shocks, coupled with significant price increases. A declining interest rate environment should improve real demand and open new opportunities for developers, especially those with ambitious recurring income projects that are capital-intensive. Interest savings should also boost profitability to highly leveraged developers. We expect 2025e deliveries to be somewhat impacted by higher construction costs but remain at healthy levels.” Mariam El Saadany added.

The real estate analyst concluded: “We expect strong real estate cash collections of EGP588bn over our 2Q25–38e forecast horizon: We estimate EGP588bn in collections over 2Q25–38e, including collections from existing receivables, new sales in the launched projects in the North Coast, Alexandria, and Eastern and Western Cairo, capturing sales from Badya, P/X, Hacienda Heneish, Hacienda Waters, Hacienda Blue, PHNC, Bamboo III, among other projects. We forecast total sales of EGP679bn over 2Q25–2032e, including EGP506bn from West Cairo, EGP131bn from the North Coast and Alexandria sales, and EGP41.9bn from East Cairo. We estimate EGP552bn of real-estate revenue recognition over 2Q25–2032e, accounting for the outstanding backlog of EGP68.9bn and new sales from launched projects’ phases, and all of Badya. We assume a total real estate cost recognition of EGP310bn over 2Q25–2032e, implying an average future gross profit margin of c44% for the launched projects. We expect interest rate easing to reflect positively on PHDC’s profitability throughout 2025e, as we forecast interest expense to drop to EGP2.09bn in 2025e from EGP2.31bn in 2024e. Management’s guidance is EGP160m in interest savings for every 100 bps rate cut. Given the declining cost of debt, management could seize the opportunity to increase its leverage; however, given the high sales levels we expect going forward, we expect the high collections to be sufficient to finance construction costs. Accordingly, we expect net debt-to-equity to drop to 0.55x in 2025e from 0.75x in 2024. Given the company’s expansion plans, we expect it to withhold dividends going forward. We expect revenue to grow at a 2025-28e CAGR of c7%, EBITDA at c13%, and net income at c23%.”

About HC Brokerage

HC Brokerage is an affiliate of HC Securities & Investment– a full-fledged investment bank providing investment banking, asset management, securities brokerage, research, and custody services. HC Brokerage is an Egyptian registered company and member of Egypt’s Financial Regulatory Authority (FRA), and its registered address is 34 Gezirat Al-Arab St., Mohandessin, Giza, Egypt, Dokki 12311

HC: Credit Agricole Egypt – Value play

Posted on by Marwa Nakhla

  • Egypt’s external position improved on currency liberalization and economic reforms despite external shocks

  • We expect CIEB to maintain decent profitability despite rate cuts

 

HC Brokerage just issued their report about the banking sector in Egypt through shedding the light on Crédit Agricole Egypt https://www.ca-egypt.com/en/ expecting the banking sector’s profitability to start normalizing parallel to monetary easing and CIEB’s net income to grow

Financials analyst and economist at HC, Heba Monir declared that: “Egypt’s economy is stabilizing and focusing on enabling private sector growth: The Ras El Hekma USD35bn investment deal with the UAE announced in February 2024 helped the Egyptian economy to overcome the FX crunch, reduce its external debt by USD11bn, record a balance of payment (BoP) surplus, and kick-start and upsize the stalled International Monetary Fund (IMF) ’s Extended Fund Facility (EFF) to Egypt. As a result, the banking sector’s net foreign asset (NFA) position widened to USD14.7bn as of May 2025, reversing a net foreign liability (NFL) position of USD29.0bn as of January 2024, and net international reserves (NIR) increased to USD48.7bn as of June 2025. Furthermore, banks have sufficient FX liquidity, which almost eliminated the FX parallel market, and inflation subdued, allowing the Central Bank of Egypt (CBE) to start cutting interest rates by 225 bps on 17 April 2025 and by 100 bps on 22 May 2025, with further expected rate cuts depending on how the geopolitical/tariffs risks will play out. Having said that, Egypt’s real GDP growth rate remains sub-optimal despite improving to 4.8% y-o-y in 3Q24/25 from 4.3% y-o-y in 2Q24/25, and the purchasing managers index (PMI), which measures the non-oil private sector activity growth, is still below the 50.0 neutral mark. We see the government prioritizing private sector growth, capping public investments at EGP1.0trn in FY24/25 and EGP1.16trn in FY25/26, encouraging Public Private Partnerships (PPP), resuming the partial asset sale program and increasing renewable energy investments, which coupled with the expected rate cuts, should bode well for CAPEX loans growth, in our view.”

“We expect Egypt’s banking sector’s profitability to start normalizing parallel to monetary easing: Given the global economic turbulences, we expect Egypt’s interest rate cuts to be gradual, with total cuts of around 550 bps by the end of 2025e, of which 325 bps already materialized. For treasury yields, we forecast it to lag the policy rate cuts with an estimated drop of 200 bps y-o-y in the 12-month T-bills rate to 24.23% by the end of 2025. This implies a real interest rate of 5.47% by year-end, based on our calculations (after deducting a 15% tax rate for US and UK investors, and based on our 12M inflation estimates). Following the rate cuts, public and private banks have cut interest rates on their certificates of deposit (CDs) by an average of 100–225 bps. Accordingly, we expect the sector’s NIMs to start retreating gradually to an average of 8.72% in 2025e from 9.25% in 2024 for our coverage universe. As for the sector’s balance sheet, we forecast loans to grow moderately by c20% y-o-y to EGP10.0trn in 2025e, compared to c49% y-o-y in 2024 (inflated by the EGP devaluation), driven mainly by EGP loans to finance working capital needs. Given the still-high interest rate environment (overnight lending rate of 25.0%) and the lower energy subsidies for the industrial sector, we do not expect CAPEX lending to materialize before 1Q26. We expect market deposits to increase by c21% y-o-y to EGP16.2trn, compared to c33% y-o-y in 2024, mainly driven by household savings. Regarding asset quality, we expect most banks to continue reporting adequate asset quality, benefiting from their sufficient provisions. As for the capital adequacy ratio (CAR), most banks’ CARs are above the CBE’s minimum requirement, and we anticipate a limited effect on their CARs, given the adopted free float exchange rate regime.” Heba Monir added.

HC’s financials analyst concluded: “We forecast CIEB’s net income to grow at a 5-year CAGR of c8%: We forecast CIEB’s net income to grow at a 5-year CAGR of c8% from 2024–29e, compared to c28% from 2019–2024, due to the base year effect as interest rates normalize. We expect FY25’s net income to inch up c1% y-o-y to EGP8.12bn, due to the high cost of funds from the still-high interest rates on CDs issued in 2024. Going forward, we anticipate net income to grow gradually due to an expected decline in the cost of funds and a rebound in lending opportunities, including CAPEX. For NIMs, we forecast it to decline moderately to 9.47% in 2025e from 10.3% in 2024, with a 5-year average of 8.89% over 2025–29e, given the significant contribution of CASA accounts of about c55% to total deposits versus the relatively lower yields on treasuries. As for CIEB’s balance sheet, we estimate the net loans-to-deposits ratio to rise to 57.7% in 2025 from 55.7% in 2024, with a 5-year average of 59.2% from 2025–29e. We estimate net loans to grow at a 5-year CAGR of 16.6%, surpassing the customer deposits’ 5-year CAGR of 14.9%, given the bank’s strategy to maintain high profitability from borrowing activities, with moderate exposure to government treasuries. Thus, we anticipate the bank’s ROE to drop to 35.4% in 2025 from 44.7% in 2024, with a 5-year average of 34.0%.”

About HC Brokerage

HC Brokerage is an affiliate of HC Securities & Investment– a full-fledged investment bank providing investment banking, asset management, securities brokerage, research, and custody services. HC Brokerage is an Egyptian registered company and member of Egypt’s Financial Regulatory Authority (FRA), and its registered address is 34 Gezirat Al-Arab St., Mohandessin, Giza, Egypt, Dokki 12311