1. 1
We upgraded our fair value for El Sewedy Electric (SWDY.CA) by 9.4% from EGP
57.4/share to EGP 62.8/share with a “HOLD” rating; and an upside potential of
4.3%. This upgrade came on the back of a strong performance in 2Q2016.
We utilized an after tax risk free rate of 13.2%, a market risk premium of 7%, a beta
of 0.8, and both FX and management & business model premium of 1% each, which
translated to a WACC of 14.17%, and a perpetual growth rate of 4%. We arrived at
a fair value of EGP 62.8/share, implying a 4.3% upside potential. We utilized 1% FX
premium on the back of the company’s favorable FX exposure. Meanwhile, the 1%
management & business model premium has been added due to the management
competence which was a main factor behind the company’s performance in 2015
and 1H2016 following the shift in the company’s business model.
Our previous fair value of EGP 57.4 has been upgraded following the results of the
second quarter. We upgraded our forecasts for the FX scenario, which worked in
favor of El Sewedy as the company is considered one of the main benefiters of the
expected devaluation/flotation of the EGP. Moreover, newly awarded projects in
power generation and transmition segments have increased our expected turnkey
revenues.
It is worthy to mention that, the current hike in risk free rate witnessed in Egypt
has caused a depression in our updated fair value. Also, any further devaluation of
the EGP beyond our expectation would increase the fair value of the company.
El Sewedy maintained its exceptional performance during 1H2016: El
Sewedy Electric reported a net profit of EGP 1.66bn in 1H2016, witnessing a 109% y-
o-y growth compared to EGP 792.9mn recorded for the same period a year earlier.
Meanwhile, the company’s net profit jumped 68% y-o-y in 2Q2016 to reach EGP
893mn compared to EGP 532.9mn recorded in 2Q2015. Revenues grew by a mere
2% y-o-y to reach EGP 10.6bn led by increased cable revenues which jumped 19% y-
o-y on the back of higher volumes sold. Turnkey revenues, meanwhile, declined 20%
y-o-y, while meters, transformers and other electrical products witnessed a com-
bined 37% y-o-y increase.
Despite revenues slight y-o-y growth, El Sewedy still witnessed 39% y-o-y increase in
terms of gross profit. The company’s gross margin jumped to reach 24.5% compared
to 17.8% in 1H2015 with all segments’ margins subject to increase. Most notably,
turnkey gross margin reached 30% in 1H2016 versus 17% for the same period a year
earlier despite the decline in turnkey revenues. This comes on the back of the com-
pany’s execution of the Angola project, worth USD 484.5mn, as well as the devalua-
tion effect which left the company’s receivables in foreign currency at a higher
value. The devaluation also had an effect on imported raw materials for cables,
which pressured smaller cable producers. However, we believe this allowed El
Sewedy to increase its gross margin for cables which stood at 14% versus 11% in
1H2015. Furthermore, gross margin for other Sewedy’s products witnessed slight or
no decline, which led to the increased total gross margin led by the two largest seg-
ments (Cables & Turnkey). The increase in gross margin led, in turn, to increased
EBITDA (+64% y-o-y), which was also helped by a severe decline in provisions and
other operating expenses. As a result, EBITDA margins jumped to reach 19% while
net margin reached 16%.
PRIME INVESTMENT RESEARCH
EL SEWEDY ELECTRIC - VALUATION UPDATE
OCTOBER , 2016
EL SEWEDY ELECTRIC …
Favorable FX Exposure is a key for El Sewedy
“HOLD”
MARKET PRICE EGP 60.2
FAIR VALUE EGP 62.8
POTENTIAL 4.3% UPSIDE
INVESTMENT GRADE
“VALUE”
Stock Data
Outstanding Shares [in mn] 223.4
Mkt. Cap [in mn] 13,393.9
Bloomberg – Reuters SWDY EY / SWDY.CA
52-WEEKS EGP 27.9/EGP 62.0
DAILY AVERAGE TURNOVER (2015) EGP 5.3MN
Ownership
El Sewedy Family 73.0%
Free Float 27.0%
All prices are as of 16 October 2016
Source: Bloomberg
0
10
20
30
40
50
60
70
SWDY EGX 30-rebased

2. 2
On a quarterly basis, despite the 12%, y-o-y, decline in revenues in 2Q2016 gross margin still grew by 22% y-o-y.
The revenue decline comes on the back of 40% y-o-y decline in turnkey revenues in 2Q2016, which was partially
offset by the increase in revenues from cables and other segments (meters, transformers, electrical products by
22% and 25%, respectively). The decline in turnkey revenues is justified by the exceptional nature of 2Q2015,
where the company was collecting revenues for the emergency power plants, which were set to be executed be-
fore the summer. Like the case in 1H2016, gross margin stood at 26% in 2Q2016 versus 18.9% in 2Q2015 led by
turnkey gross margin, which almost doubled reaching 34% (versus 18% in 2Q2015). Meanwhile cables margin in-
creased slightly to reach 15% in 2Q2016 compared to 13% for the same period a year earlier. This increase in mar-
gins for both main segments has the same justification as for 1H2016. The increase in gross profit led as a result to
50% y-o-y increase in EBITDA and 68% y-o-y increase in net profit. EBITDA margin stood at 21% with net margin
standing. at 15%.
Turnkey segment remains the main reason behind the company’s high margins: El Sewedy maintained a
diversified backlog (EGP 20.4bn) with Egypt’s contribution standing at 58%, while Sub Saharan Africa and GCC rep-
resented 23% and 16%, respectively. The reason behind the exceptional turnkey gross margin in 1H2016 is mainly
the reduced contingencies/costs in the Attaqa and Mahmoudia projects as well as the devaluation effect which left
the company’s receivables in foreign currency at a higher value. Currently, El Sewedy is working on its largest
power generation project with Siemens in Beni Suef, which we expect to be completed by 1H2018 with El Sewedy’s
share standing at EUR 785mn. The other main new awards was the contract signed with the Ministry of Electricity
and Water in Angola to build three power plants worth USD 484.5mn. The award includes engineering, procure-
ment and construction plus finance (EPC + Finance) and we expect to be delivered by the end of 2017. Alongside
the first phase of power generation, El Sewedy has started the second phase of power transmition with the
award of a transmition project in Egypt in June worth EGP 671mn. Later in July, El Sewedy was awarded a further
transmition project with the Egyptian government worth USD 190mn with an expected execution period of 18
PRIME INVESTMENT RESEARCH
EL SEWEDY ELECTRIC - VALUATION UPDATE
OCTOBER , 2016
EGP MN, 000 Revenues Gross Profit Gross Margin
2Q 2016 2Q 2015 y-o-y 2Q 2016 2Q 2015 y-o-y 2Q 2016 2Q 2015
Cables 2,712,257 2,220,369 22% 410,941 284,073 45% 15% 13%
Turnkey 2,134,361 3,550,307 -40% 723,010 634,743 14% 34% 18%
Raw Materials 551,633 539,595 2% 174,891 117,029 49% 32% 22%
Meters 209,361 184,179 14% 59,697 46,861 27% 29% 25%
Transformers 179,777 96,571 86% 57,102 46,085 24% 32% 48%
Electrical Products 72,864 87,529 -17% 38,890 52,715 -26% 53% 60%
REVENUE & GROSS PROFIT BREAKDOWN IN 2Q 2016
46%
36%
9%
4% 3% 1%
Cables
Turnkey
Raw Materials
Transformers
Electrical Products
28%
49%
12%
4%
4% 3%
Cables
Turnkey
Raw Materials
Transformers
Electrical Products
REVENUE BREAKDOWN 2Q 2016 GROSS PROFIT BREAKDOWN 2Q 2016
SOURCE: EL SEWEDY ELECTRIC

3. 3
Other power projects have also been awarded in KSA and Qatar worth USD 21mn and QAR 80mn. The new
awards in the GCC confirm El Sewedy’s status as an A-Class contractor in Sub Saharan Africa and MENA and diver-
sifies the company’s operations in case of spending slowdown in Egypt. Entering the power transmition phase
also allows the company to maintain high turnkey revenues starting 2018 following the execution of the Beni Suef
project. It is noteworthy that, the company's gross margin is expected to drop gradually following the execution
of the Beni Suef and Angola projects in 2017-2018.
Favorable FX exposure is a key for El Sewedy Electric:
El Sewedy remains one of the companies with the most favor-
able FX exposure in Egypt. The increased contribution of the
turnkey segment, which started in 2015, has contributed to
the favorable FX exposure. Egyptian projects, which constitute
58% of the company’s total backlog, have all been signed in
foreign currency on an “EPC+finance” hedging against any
devaluation risk or lack of foreign currency supply. The remain-
ing percentage of El Sewedy’s backlog are mainly in Africa and
GCC countries. In total the company’s turnkey revenues as
well as foreign operations offset any FX risk caused by El
Sewedy’s local cable sales. It is worthy to mention that the
company recorded EGP 267mn FX gains in 1Q2016 due to the
revaluation of its receivables from the Attaqa & Mahmoudia
fast track project. Our increased forecasts for the FX scenario
led to higher forecasted revenues due to the company's favor-
able exposure.
I
n
New awards and transmition projects and increased energy consumption to cause higher demand for cables:
The increase in number of awards as well as expected increase in energy consumption in Egypt and the GCC coun-
tries are expected to increased demand for El Sewedy cables. Hence we expect volumes to increase gradually
with utilization rates reaching 80% by 2020 for copper cables.
PRIME INVESTMENT RESEARCH
EL SEWEDY ELECTRIC - VALUATION UPDATE
OCTOBER , 2016
TURNKEY REVENUE FORECASTS, EGP BN
17.4%
22.5%
19.1%
17.3% 17.1% 17.1%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
-
0.5
1.0
1.5
2.0
2.5
3.0
2015 2016 2017 2018 2019 2020
Gross Profit Gross Margin
10.0%
66.4%
-16.8%
-40.9%
-0.1%
-60%
-40%
-20%
0%
20%
40%
60%
80%
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
2015 2016 2017 2018 2019 2020
Revenues Growth %
TURNKEY GROSS PROFIT FORECASTS, EGP BN
SOURCE: PRIME RESEARCH
23.1
25.1
22.3 22.3 22.4
21.1
26.5 26.5
24.8 25.0
-
5.0
10.0
15.0
20.0
25.0
30.0
2016 2017 2018 2019 2020
Before Update After Update
TOTAL REVENUES ACCORDING TO NEW FX-SCENARIO, EGP BN
SOURCE: PRIME RESEARCH

4. 4
PRIME INVESTMENT RESEARCH
EL SEWEDY ELECTRIC - VALUATION UPDATE
OCTOBER , 2016
 Financial Statements … Historical & Forecast
Income Statement Brief Hist. Forecast
In EGP Mn 2015 2016F 2017F 2018F
Revenues 20,572 21,133 26,517 26,483
Change 20.9% 2.7% 25.5% -0.1%
COGS 16,908 16,330 20,799 21,206
Change 20.2% -3.4% 27.4% 2.0%
Gross Profit 3,664 4,803 5,719 5,277
EBITDA 2,293 3,228 3,921 3,468
EBITDA Margin 11.1% 15.3% 14.8% 13.1%
Net Income After MI 1,245 2,530 2,622 2,387
NPM 6.1% 12.0% 9.9% 9.0%
Balance Sheet Brief Hist. Forecast
In EGP Mn 2015 2016F 2017F 2018F
Cash 3,822 4,417 3,982 4,356
Net Receivables 9,350 9,294 10,235 9,790
Net Inventory 3,322 4,166 4,964 4,945
Total Current Assets 17,358 18,402 19,840 19,750
Net PPE 3,193 3,195 2,964 2,716
Net Intangibles 59 59 59 59
Total Long Term Assets 3,416 3,297 3,067 2,818
Total Assets 20,775 21,699 22,907 22,568
Liabilities
STD - incl CPLTD 6,096 5,322 4,701 3,433
Accounts Payable 7,141 6,487 6,838 6,681
Total Current Liabilities 13,416 12,085 11,808 10,360
LTD 167 27 0 0
Total Long Term Liabilities 823 961 1283 1631
Total Liabilities 14,240 13,046 13,091 11,991
Equity
Total Equity 6,535 8,653 9,816 10,577
Financial Ratios Hist. Forecast
2015 2016F 2017F 2018F
GPM 18% 23% 22% 20%
EBITDA Margin 11% 15% 15% 13%
NPM 6% 12% 10% 9%
EPS 5.6 11.3 11.7 10.7
P/E 10.8x 5.3x 5.1x 5.6x
EV/EBITDA 8.0 5.3 4.4 4.5
ROA 8.2% 11.7% 11.7% 10.2%
ROE 18.5% 34.4% 26.9% 21.5%
Total Assets Turnover 1.0 1.0 1.2 1.2
BV/Share 29.3 38.7 43.9 47.3

5. 5
PRIME INVESTMENT RESEARCH
EL SEWEDY ELECTRIC - VALUATION UPDATE
OCTOBER , 2016

6. 6
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PRIME INVESTMENT RESEARCH
EL SEWEDY ELECTRIC - VALUATION UPDATE
OCTOBER , 2016