On a call with ORHD Investors Relations Director Ahmed Abou El Ella, we had a deep dive into earnings rationales and how 1Q-23 is an inkling for the forthcoming quarters of 2023.
Rooms occupancy is vital for one of ORHD's core businesses (Hotels business) and coming in line with the Egyptian Government's strategy of increasing tourism income as a source of foreign currency (Hotels revenue mix includes 87% in foreign currency), TABA Heights is on 30% occupancy of its total rooms capacity which keeps an unlocked space for more occupancy on the future with a recover all over TABA as a touristic site.
*Data as of closing prices for 16/5/2023 session
TABA Heights is back on track after several years of losses; financial years 2021 and 2022 show a recovery on positive notes. The Average room rate for TABA Heights is around USD 50/night vs. almost USD 100/night for EL-Gouna; neither Taba nor EL-Gouna room occupancy is at the peak, as El Gouna occupancy peak recorded pre-COVID was between 83%-85%, and for TABA Heights it's clear that it's not even at the middle and pre-2010 the occupancy rate was 80%. So, both still have room to benefit from an increase in occupancy rates plus the increase in average room rates.
Hotels KPIs were robust, a reflection of higher ARRs, with occupancy rates maintained at healthy levels (at 69% in El Gouna). RevPar reached record highs for El Gouna and Taba in 1Q23. Prioritizing ARRs over occupancy rates has been an integral part of the company’s strategy over the past period, supported by a two-year hotel renovation program, which is set to be concluded in 1H23-end. Foreign guests’ contribution at El Gouna was at 87% in 1Q23 (vs. 85% in 4Q22), which compares to 80% for 2022, 78% for 9M22, 42% for 2021 and 5-10% during the pandemic quarters.
Real Estate has an immense revenue contribution with a strategy that depends on increasing the pace of completion of the building across all projects for 2 reasons. First, on hedging against the continued raw material price hikes, a phenomenon which is across the globe, so the more competition, the lower the cost, the healthier for the margin; second reason a faster earnings recognitions on the sheet as ORHD follows IFRS accounting standards which mandate to recognize the earnings upon levels of completion. Part of these recognitions is the land revenue for the sold villas, which varies across the projects between 15% for El-Gouna, 20% O-West, and 15% for Makadi Heights, which are recognized on the primary sales transaction.
Delivery Plans for ORHD real estate projects:
El-Gouna 2 years
Makadi Heights 3 years
O-West 4 years
Financial Sheets loaded with a cash mix of USD 50mn, EURO 14mn, and EGP 1.7bn, which in total represents EGP 3.82bn, the sale of land that was approved during the last AGM meeting isn't booked in Q1-23 and will be reflected on Q2-23 earnings with a total of EGP 390mn for the 3 land plots, the land sale is going to be on yearly pace as strategy for a continues repricing for the land.
Strategy and other topics:
Management is proactively pursuing JVs and partnerships (new hotels, schools, marinas, etc.) across the various assets and destinations to further enhance the cash flow outlook and achieve faster monetization of value.
In the short term, the focus on land bank monetization will be through transformative deals rather than land sales, according to management, with the impact of projected partnership deals expected to yield higher impact levels over time.
Management noted a robust q-t-d performance for the real estate and hospitality segment, in line with 1Q23 trends.
Hotel occupancy rates currently stand at 75% in El Gouna and at mid-30% in Taba during the first 5 months of 2023.
Management looks to capitalize on the outperformance of the hospitality segment in Egypt through expanding capacity and upgrading hotels in El Gouna as well as moving towards more profitable segments, including golf courses.
Management indicated that most of the construction materials are locked at fixed prices with contractors, with the exception of 1-2 items which remain variable.
There are currently no plans for adding a university in El Gouna in place.
Management may explore the possibility of a bank debt restructuring in the coming few months.
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