In a report issued Sunday, EFG-Hermes maintained its Buy recommendation on Egypt’s rug manufacturer Oriental Weavers (OW), raising the stock’s fair value to EGP78 from EGP57, with 28% upside potential.
“We expect another wave of re-rating for OW (+76% YTD versus HFI +30%), on strong growth prospects (2015-16 average net profit growth of 18%) and compelling valuation (2015e P/E of 13x versus peers' 17x),” EFG said.
OW's EGP1.2 billion five-year expansion plan will unlock future capacity constraint (current utilisation is c90%), but will cap dividend distribution in high-capex years, said the research firm. “Further EGP weakness is an upside risk to our forecast (exports account for c60% of sales). On the downside, any unexpected demand setback in export markets and/or a slowdown in the pace of growth in local sales would slow down the capacity acceleration of added capacity,” said EFG.
Meanwhile, Mohamed Farid Khamis, OW’s founder and chairman revealed that the group plans to open two new plants (King Tut plants) within the upcoming five years at an expected investment cost of EGP 695 million.
The top official said his group has a five-year plan that includes the establishment of two plants: the first is scheduled to be opened late 2017 and the second in 2020.
The two plants will boost the group’s production capacity by nearly 48%, Khamis said. He also asserted that OW targets an increase in sales to EGP 6 billion by the end of 2014, of which 65% will be exports.
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