Ibnsina Pharma (ISPH) : A Clean Bill of Health

Ibnsina Pharma (ISPH)
Overweight / Moderate Risk

Sunday, 25 November 2018 / 1:45 pm CLT 12-Month Price Target: EGP13.20 (+25%)
Egypt / Health Care / Initiation of Coverage (Set on 25 November 2018)
A Clean Bill of Health

Contents Ibnsina Pharma (ISPH) is Egypt’s second largest pharmaceutical
distributor with a 20% market share. We like its story as the company
• The Story Page 2
is (1) benefiting from the health care sector’s strong fundamentals
• The Numbers Page 9
along with Egypt’s favorable demographics, (2) bolstering its
• The Valuation Page 11
foothold in the industry with continued growth in market share, (3)
• The Financial Model Page 14
operating in the pharmaceutical distribution market which has
• The Background Page 15
relatively high entry barriers, and (4) likely to benefit from favorable
• The Leadership Page 16
cash discounts and economies of scale.
Stock Chart & Data • Supportive industry dynamics: The pharmaceuticals industry in
Volume (mn), Right ISPH EGX30 Index Egypt has been growing rapidly over the past couple of years. It
140% 16.0 grew by a five-year CAGR (2012-2017) of 18.4% to EGP51bn, with a
120% 14.0 double-digit growth every year from 2013 to 2017. We expect that
100% 12.0
total pharma sales in Egypt will continue on this high growth
80% 10.0
trajectory to hit EGP112.5bn by 2022, backed by a major catalyst,
60% 8.0
namely Egypt’s new Universal Health Insurance Law. As a result, we
40% 6.0
20% 4.0
see ISPH benefiting from the robust growth in the industry.
0% 2.0 • Expected market share growth to boost top line; favorable cash
-20% 0.0
discounts and economies of scale to improve margins: We expect
ISPH will be able to grow its market share from a current 20% to 25%
by 2022, translating into EGP28.23bn of gross sales in 2022, implying
Last Price (EGP) 10.59
52 Week Range (EGP) 5.80-12.80
a five-year CAGR of 24%. We expect ISPH’s gross profit margin to
6M-ADVT (EGPmn) 6.62 stabilize at 8.7% by 2020 versus 8.6% in 9M 2018, thanks to favorable
Market Cap (EGPmn) 7,646 cash discounts. Moreover, we expect its economies of scale will
No. of Shares O/S (mn) / Free float 722.0 /37.31%
*Last price as of 22 November 2018
help lift EBITDA margin to stabilize at 4.7% by 2020 versus 4.3% in 9M
2018.
• 12M PT of EGP13.20/share, initiate with an Overweight / Moderate
Risk (ETR +25%): We have set three different scenarios to gauge the
sensitivity of ISPH’s valuation to changes in some of its KPIs (e.g.
market share and GPM) as well as the effect of ISPH’s ongoing legal
case. Our valuation range came in between EGP6.81-21.56/share. We
initiate our coverage on ISPH with a DCF-based 12-month price
target (PT) of EGP13.20/share (an expected total return of 25%) and
an Overweight / Moderate Risk rating.
Financial Summary
EGPmn FY2016a FY2017a FY2018e FY2019e FY2020e FY2021e
Revenue 7,206 9,586 12,401 15,555 19,133 23,160
EBITDA 229 407 521 681 868 1,069
Net Income 102 170 296 442 598 756
Revenue Growth (%) 35% 33% 29% 25% 23% 21%
EBITDA Growth (%) 52% 78% 28% 31% 27% 23%
Net Income Growth (%) 77% 67% 74% 50% 35% 26%
EBITDA Margin (%) 3.2% 4.2% 4.2% 4.4% 4.5% 4.6%
Net Margin (%) 1.4% 1.8% 2.4% 2.8% 3.1% 3.3%
Net Debt (Cash) 68 (107) (453) (601) (866) (1,113)
EPS (EGP) 0.15 0.25 0.41 0.61 0.83 1.05
Analyst BVPS (EGP) 0.46 0.62 1.15 1.41 1.76 2.20
DPS (EGP) 0.10 - 0.20 0.31 0.41 0.52
Mohamed Sobol
PER (x) 38.3x 32.8x 25.9x 17.3x 12.8x 10.1x
Equity Analyst
EV/EBITDA (x) 17.3x 13.4x 13.8x 10.3x 7.8x 6.1x
msobol@shuaasecurities.com
+202 2673 5993 Dividend Yield (%) 1.7% 0.0% 1.9% 2.9% 3.9% 4.9%
Source: Company reports and SHUAA Securities Egypt estimates.
SHUAA Research Page 1 of 19

Sunday, 25 November 2018 / 1:45 pm CLT
Egypt / Health Care / Initiation of Coverage
The Story
ISPH’s market share structure vs. its ISPH was established in 2001 as a pharmaceutical distribution
competitors company, fulfilling the needs of retailers (i.e. pharmacies) through
manufacturers of medicines (i.e. drugmakers). The company has a
complete control over its distribution value chain process. ISPH takes
ISPH,
9.9% order from retailers, execute them through 350+ suppliers before
being processed in ISPH’s 57 operational sites. Orders are later
Others,
prepared to be distributed to 42,000 clients nationwide using the
43.8% UCP,
2011 32.7% company’s fleet of 654 vehicles. Furthermore, ISPH has no
concentration risk either from the manufacturers or the retailers
sides. ISPH’s top five suppliers represent less than 25% of its sales,
POS,
while its largest customer represents only 1.5% of the company’s
13.6%
sales. Also, each stock keeping unit (SKU) represents less than 0.5% of
ISPH’s sales.
• ISPH’s life cycle and its position in the market: ISPH has gone
through four different stages.
1. The Launch (2001-2005): ISPH was not profitable in this stage. It
was making c.EGP665mn in revenues by end of this period while
incurring some losses.
ISPH,
20.2%
Others, 2. The Turnaround (2006-2008): ISPH was able to turn into
31.3%
profitability.
9M 2018 3. The Expansion (2009-2012): ISPH was able to expand its business,
UCP, growing its operational sites from 7 in 2008 to 27 by 2012 and
32.9%
POS, 15.6% double its client base from 16,000 to 30,000.
4. The Growth (2013-Present): ISPH is currently within this stage; it
Source: Company reports
was able to grow its market share from 10% in 2011 to 20.2% by
9M 2018, beating the other two large distributors in the market,
namely UCP (from 32.7% to 32.9%) and Pharmaoverseas (from
13.6% to 15.6%).
• Benefiting from the industry’s strong fundamentals: From an
industry perspective, ISPH is benefiting from the defensive nature
of the pharmaceutical industry, the robust growth within the
Egyptian pharma market, and the high barriers to entry of the
industry. Moreover, the industry is highly regulated; the Ministry of
Health & Population (MoHP) controls the prices of medicines and
sets the mark-up and profits margins for drugmakers, distributors,
and retailers. This, in turn, mitigates any risks related to the
bargaining power of suppliers or clients.

The Story (Cont.’d)

Revenue segment contribution (9M 2018) A summary of the barriers to entry in the industry are as follows:
Personal Exports & 1. It takes around EGP1.5bn worth of investments to build a decent
Care, 3.2% 3PL ,
0.3% infrastructure capable of reaching and offering services to
Hospitals,
2.4% Tenders,
geographically dispersed clients as well as more than eight years
9.8% to build the infrastructure, according to ISPH’s management.
2. A highly labor-intensive business, as new entrants will need to
Wholesale,
15.2% recruit, train, and manage a workforce of over 5,000 personnel.
Retail
Pharmacy, 3. Highly-complex inventory management to maintain healthy
69.1%
levels without overstocking or running short in inventory.
4. Size matters as suppliers and retailers prefer to deal with a fewer
Source: Company reports number of distributors but with larger capabilities in terms of
coverage, fleet size, and operational sites.
Segments
ISPH’s business model is split into seven different segments as follows:
Retail segment’s historical revenues 1. Retail: Retail is ISPH’s bread-and-butter segment, contributing
8,000 the most to its top line, 69.1% in 9M 2018 and four-year average
CAGR of 32% 6,902
7,000 of 70%. Through the retail segment, ISPH distributes medicines
6,000
5,214
to big and small pharmacies located in different locations all over
5,000 the country. The segment’s gross profit margin is c.8.2%.
3,808
4,000
3,031
3,000
2,000
1,000
0
2014 2015 2016 2017
Revenue (EGPmn)
Wholesale segment’s historical revenues 2. Wholesale: Wholesale is the second largest contributor to ISPH’s
revenues, 15.2% in 9M 2018 and four-year average of 13%. Through
1,600
CAGR of 40% 1,424 this segment, ISPH distributes medicines to other small
1,400
distributors in the market, which also allows ISPH to distribute
1,200
1,000
medicines to areas that are hard to reach. The segment’s gross
889
800
profit margin is c.8.2%.
655
600 520
400
200
0
2014 2015 2016 2017
Revenue (EGPmn)
Tenders segment’s historical revenues 3. Tenders: Under this segment, ISPH distributes medicines to
CAGR of 23% public hospitals via MoHP tenders. The segment contributed
1,000
900
868
913 9.8% to revenues in 9M 2018 with a four-year average of 11%. The
800 segment’s gross profit margin stood at 7.7% in 2017.
700 653
600
492
500
400
300
200
100
0
2014 2015 2016 2017
Revenue (EGPmn)


Personal care segment’s historical 4. Personal Care: Within this segment, ISPH distributes personal
revenues CAGR of 28%
care products to pharmacies. The segment is characterized by
300 285 higher margins than ISPH’s main segments. The segment
250 contributed 3.2% to revenues in 9M 2018 with a four-year
200 average of 3%. The segment’s gross profit margin stood at 10%
164
150 135
146 in 2017.
100
50
0
2014 2015 2016 2017
Revenue (EGPmn)
Hospitals segment’s historical revenues 5. Hospitals: Through its hospitals segment, ISPH distributes
medicines to private hospitals in Egypt. The segment
300
CAGR of 32% 265
contributed to 2.4% of revenues in 9M 2018 with a four-year
250 average of 3%. The segment’s gross profit margin is c.8.2%.
217
200
164
150
116
100
50
0
2014 2015 2016 2017
Revenue (EGPmn)
3PL services segment’s historical 6. Third Party Logistics (3PL) services: In 2013, ISPH introduced a
revenues new revenue stream aiming to further enhance its margins. 3PL
30
services includes warehousing services for suppliers,
CAGR of 49%
25
25 transportation services for FMCG brands names (e.g. Unilever
20 and P&G) as well as other services (e.g. overprinting and re-
20
packaging of pharmaceutical products). The segment
15
12
contributes a small portion to ISPH’s top line with a four-year
10 8
average of just 0.2%.
5
0
2014 2015 2016 2017
Revenue (EGPmn)
Exports segment’s historical revenues 7. Exports: This is the newest segment to ISPH. ISPH exports
medicines to African and Asian markets, but exports sales are
2.00 2 subject to MoHP approval after satisfying local market demand.
1.80
1.60
The segment numbers just started to appear recently, clocking
1.40 in EGP2mn in revenues in 2017. However, the company believes
1.20
1.00
there is ample room for growth in the future. The segment’s
0.80 gross profit margin stood at 8.2% in 2017.
0.60
0.40
0.20
0.00
2014 2015 2016 2017
Revenue (EGPmn)


Key assumptions
EGPmn, unless otherwise stated FY2015a FY2016a FY2017a FY2018e FY2019e FY2020e FY2021e FY2022e
Average price per unit (EGP) 15 18 25 29 33 37 41 45

y/y growth 20% 39% 16% 14% 12% 11% 10%
Volume Sold (mn units) 2,354 2,424 2,046 2,136 2,227 2,318 2,409 2,500
y/y growth 3% -16% 4% 4% 4% 4% 4%
Total Pharma Sales 35,308 43,624 51,138 61,956 73,501 85,773 98,773 112,500
y/y growth 24% 17% 21% 19% 17% 15% 14%
ISPH's market share 15.40% 16.90% 19.20% 20.36% 21.52% 22.68% 23.84% 25.00%
Total Pharma Dist. Revenues 5,425 7,352 9,791 12,614 15,817 19,453 23,548 28,125
y/y growth 36% 33% 29% 25% 23% 21% 19%
3PL Pharma Services & Others 12 20 25 40 55 70 85 100

y/y growth 69% 26% 59% 37% 27% 21% 18%
Total Gross Revenues 5,437 7,372 9,816 12,654 15,873 19,524 23,633 28,225
y/y growth 36% 33% 29% 25% 23% 21% 19%
Sales discounts 111 166 232 253 317 390 473 565
% of total gross rev. 2.0% 2.3% 2.4% 2.0% 2.0% 2.0% 2.0% 2.0%
Net Sales 5,326 7,206 9,586 12,401 15,555 19,133 23,160 27,661
y/y growth 35% 33% 29% 25% 23% 21% 19%
Pharma Dist. Revenues Breakdown
Retail Pharmacy 3,808 5,214 6,902 8,893 11,167 13,754 16,672 19,941
y/y growth 37% 32% 29% 26% 23% 21% 20%
Wholesale 655 889 1,424 1,780 2,216 2,706 3,252 3,856

y/y growth 36% 60% 25% 25% 22% 20% 19%
Tenders 653 868 913 1,198 1,503 1,848 2,237 2,672

y/y growth 33% 5% 31% 25% 23% 21% 19%
Personal Care 146 164 285 378 475 584 706 844
y/y growth 13% 73% 33% 25% 23% 21% 19%
Hospitals 164 217 265 353 443 545 659 788

y/y growth 33% 22% 33% 25% 23% 21% 19%
Exports - - 2 11 14 18 21 25
y/y growth - - 502% 25% 23% 21% 19%
Source: SHUAA Securities Egypt estimates


Total sales value in the market Industry Overview
60,000 30% • Historical growth: The pharmaceuticals industry in Egypt has been
50,000
51,138
25% growing rapidly in the past few years, growing at a five-year CAGR
40,000 43,624 20% (2012-2017) of 18.4% to EGP51bn with a double-digit growth every
30,000
30,946
35,308 15% year from 2013 through 2017. The notable growth in the industry
20,000 24,700 10% can be attributed to many reasons, just to name a few:
10,000 5%
1. Egypt’s high population coupled with favorable demographics.
- 0%
2013 2014 2015 2016 2017
Total Pharma Sales (EGPmn) Growth y/y %

2. The defensive nature of the industry, being inelastic as demand
for pharmaceutical products is not affected by economic
conditions.
Source: Company reports 3. The increase in prices of pharma products witnessed in the past
two years in addition to higher-priced replacements by
drugmakers.
Total volume sold in the market
4. More people prefer self-medication as they find it cheaper
3,000 20%
compared to other sources of treatment.
15%
2,500
2,424 10%
5. The growing health awareness among Egyptians.
2,354
2,000 2,210
2,046 5%
1,500
1,900
0% • Industry outlook: We expect that the aforementioned reasons will
-5%
1,000 likely exist, adding two other key growth drivers to the industry.
-10%
500
-15%
First, Egypt’s new Universal Health Insurance Law, which was
0 -20% approved in December 2017 by the Parliament’s Health Committee
2013 2014 2015 2016 2017
in Egypt. The new law stipulates that all Egypt’s population will
Volume sold (mn) Growth y/y %
have access to health insurance services. Currently, there are 42mn
citizens with no health insurance policies either by the public or the
private sectors. The law is already being applied over three phases
with the last phase ending by 2032. Second, the potential increases
in pharma product prices which were discussed by the government
Medicine’s average price per unit back in August 2017 but not implemented yet.
progress
Looking at the sector from a macro perspective, total healthcare
EGP
30 45%
expenditures (THE) per capita in Egypt (USD156 in 2015) is relatively
25
40% low compared to MENA countries. Furthermore, THE as a
35%
25 percentage of GDP in Egypt stood at 4.2%, which is below MENA
20 30%
18 25%
average (5.1% in 2015). However, Egypt’s total health expenditure
15
14
15 20% grew at four-year CAGR of 12%, a growth rate higher than what
13
10 15%
MENA countries have achieved in the same period. There is room
10%
5
5% for more growth down the road given the favorable catalysts in the
0 0% industry. Consequently, we forecast that total pharma sales in
2013 2014 2015 2016 2017
Avg. Price/unit Growth y/y %

Egypt will grow at a five-year CAGR of 17% to EGP112.5bn by 2022.
Total health expenditure as a % of GDP for MENA countries

The price increase in medicines by the
8.00%
government 7.00%
6.00%
Hike 5.00%
Hike rates Notes
round 4.00%
for all products sold below EGP30 per 3.00%
May-16 20%
package with a minimum and a maximum 2.00%
50% For packages ranging from EGP1 to EGP50
Jan-17 40% For packages ranging from EGP50 to EGP100
30% For packages sold above EGP100
Source: Company reports & media sources Health expenditure (% of GDP) for MENA markets Avg. MENA markets
Source: World Bank (2015)


Drugmakers’ market shares as of 2017 • The value chain: The pharmaceuticals industry is mainly built around
three main pillars. First, the drugmakers, which include names like
Novartis, 8% Novartis, Pfizer, and GlaxoSmithKline. Second, the distributors,
GSK, 6% whom we are concerned with, which includes names like
Sanofi, 5%
Pharmaoverseas, Ibnsina Pharma, and United Company of
Pharmacists. Last, but not least, the retailers, which includes a
Pharco, 5% different kind of players ranging from pharmacies to hospitals and
Amoun, 5%
wholesalers. The drugmakers and retailers (more specifically
Others, 56% pharmacies) markets are mainly fragmented in terms of market
Eipico, 4% share with many players holding small market shares, unlike the
distributors market which is mainly concentrated around three big
Eva, 4%
Pfizer, 3%
players holding around 68% of the market. Moreover, the
Hikma, 2% distributors market is leaning towards a more consolidative
Global Napi, 2% approach, potentially leading larger distributors to acquire small
Source: Company reports distributors.
• Who sets the prices in the industry? The pharma industry is highly
Retailers market share as of 2017 regulated by MoHP which established the Egyptian Drug Authority
(EDA) in 2008 as independent regulatory body to oversee the
industry. Through its entity the Central Administration of
Seif, 6%
Ezaby, Pharmaceutical Affairs (CAPA), EDA controls the prices of medicines
8% Roushy, 5%
as well as sets the mark-up and profits margins for the drug
Misr, 5% manufacturers, distributors, and retailers. The price of a product is
valid for a five-year period and the price revision can occur in the
following cases: (1) if the exchange rate fluctuates at an average of
±15% within one year and (2) if a drugmaker demands a price change
Others, 92%
for its products, not exceeding 5% of its products per year. For more
details about the regulators in the industry, please find the below
figure.
Regulators in the pharmaceutical industry in Egypt
Ministry of Health and

Population (MoHP)
Egyptian Drug Health Insurance

Authority (EDA) Organization (HIO)
National Organization for Central Administration National Organization Medical Supply

Drug Control and for Pharmaceutical for Research and Control Procurement Committee
Research (NODCAR) Affairs (CAPA) of Biologicals (NORCB)
Licensing and
Inspection and Import and
Registration Pharmacists’
Control Export
Services
Pricing
Committee
Source: Pharmaceutical Prices in the 21st Century; Heba Wanis; Pharmaceutical Pricing in Egypt (November 2015).


• A little background about the pricing policy in the industry: Since
the 1950s, pharma products have followed a strict compulsory
pricing policy, intended to make medicines affordable to the lower-
income segments of the population. Later on, MoHP established a
new pricing policy through two ministerial decrees in 1990 and 1991,
which included the cost-plus and mark-up regulation. In 2009, the
Egyptian government had amended the pricing policy adopted in
the beginning of the 1990s, introducing the external reference
pricing (ERP) system, in which a list of 36 countries is used as
guidance to price medicine. Yet again, in 2012, the government
amended the pricing policy, still relying on the ERP policy; however,
it raised the distribution of profit margins for the three main pillars
in the industry (supplier, distributor, and retailer).
Profit margins for distributors and pharmacists

Distributors Pharmacists
Essential drugs 7.86% of ex-factory price 25% of ex-factory price

Subsidized 4% of ex-factory price 10% of ex-factory price
8.8% of importer's selling price 22.9% of importer's selling price
Imported (public selling price < EGP500 per box)
6.4% of public selling price 18% of public selling price
6.4% of importer's selling price 18.5% of importer's selling price
Imported (public selling price > EGP500 per box)
4.8% of public selling price 15% of public selling price
30% of distributors' selling price
Local and bulk products (raw materials) 8.8% of ex-factory price
25% of public selling price
Source: Pharmaceutical Prices in the 21st Century; Heba Wanis; Pharmaceutical Pricing in Egypt (November 2015).

The Numbers
ISPH posted EGP9.82bn in gross sales in 2017 (+33% y/y) with a three-
year CAGR of 32%, thanks to its retail pharmacy segment (+32% y/y,
three-year CAGR of 32%) — the major contributor to gross sales by a
four-year average of 70%. This was backed by ISPH expanding its
business with pharmacies as well as the increase in medicine prices.
ISPH’s sales growth has surpassed Egypt’s pharmaceutical sales
growth over the last few years which grew only 20% y/y in 2017.
Moreover, ISPH continued to maintain its second position in the
distribution segment with a 20.2% market share in 9M 2018. ISPH has
been adding market share at an average rate of 1.3% per annum for
Forecasted gross sales the last seven years, thanks to the growth strategy the company is
currently undertaking.
CAGR of 24%
30,000 Revenues
28,225
25,000
23,633
• To forecast ISPH’s gross sales, we first forecast total
20,000
19,524
pharmaceutical sales in Egypt, which we expect will grow at a five-
15,000
15,873 year CAGR of 17% to EGP112.5bn by 2022 on the back of five-year
10,000 12,654 CAGRs of 12% in average unit price and 4% in total volume sold in the
5,000
market. We applied a target market share of 25% for ISPH to achieve
by 2022, driven by expansion in ISPH’s business with pharmacies as
-
2018e 2019e 2020e 2021e 2022e well as the possibility of acquiring small distributors in the market,
Gross Sales (EGPmn) especially in its low-presence areas in Egypt. We reached
Source: SHUAA Securities Egypt estimates EGP28.23bn in gross sales by 2022, implying a five-year CAGR of 24%.
The retail segment continues to be the major contributor to gross
Forecasted gross profit & GPM sales by 70% over our forecast period.
Gross Profit Margin
3,000 9.0%
• As we mentioned earlier, the industry is highly regulated by the
2,500 8.8% government, leaving an 8% gross profit margin for the distributors,
2,000 which was 7% in early 2016. ISPH’s gross profit margin in the last two
8.6%
1,500 years has been fluctuating between 7.7% and 8.4%. Such fluctuations
8.4% mainly occur as a result of (1) sales discounts given by ISPH to its
1,000
clients, (2) cash discounts received by ISPH from its suppliers, and
500 8.2%
(3) bonus and rebates received by ISPH from its suppliers. We
0 8.0% forecast that ISPH’s gross profit margin will improve to stabilize at
2018e 2019e 2020e 2021e 2022e
8.7% by 2020 on favorable cash discounts from suppliers as well as
Gross Profit (EGPmn) GPM
focusing more on unregulated margins products and services.
SG&A and EBITDA Margin
Forecasted EBITDA & Margin • Selling, general, and administrative (SG&A) expenses as a
percentage of gross sales have been in the range of 4.2-4.6% in the
1,500 4.8%
past five years, with employees’ salaries being the major
1,300 4.7% component with c.55% of SG&A. We expect SG&A/gross sales to
4.6%
1,100
4.5%
stabilize at 4% by 2022 on better economies of scale. Given the
900 4.4% business’s high labor intensity, more sales will filter through into
700 4.3% operating margins. As a result, we expect a higher EBITDA margin
4.2%
500 of 4.7% by 2022, up from a current 4.3%.
4.1%
300 4.0%
100 3.9%
2018e 2019e 2020e 2021e 2022e
EBITDA (EGPmn) EBITDA Margin

The Numbers (Cont.’d)

Working capital cash conversion cycle Working Capital
150 days 5 days • ISPH’s cash conversion cycle (CCC) has been improving gradually; it
4 days
100 days
3 days
went from 10 days in 2014 to –8 days in 2017. The primary drivers of
50 days
2 days this improvement can be attributed to an increase in payables days
1 days
0 days 0 days
on hand along with stable receivables days on hand. Furthermore,
-1 days ISPH has the option to pay its suppliers on a cash basis or through
-50 days
-2 days credit terms ranging from 120-150 days. This allows ISPH to take on
-3 days
-100 days
-4 days
a discount of 5-6%. Historically, ISPH’s purchases on average were
-150 days -5 days 30% cash basis and 70% on credit. According to management, these
2018e 2019e 2020e 2021e 2022e
ratios are expected to stick in the future. Going forward, we project
Inventories Accounts Receivable ISPH’s CCC to stay negative, albeit at a declining rate to reach –1 day
Others Non-Cash C. Assets Accounts Payable
Others Non-debt C. Liab. CCC (RHS) by the end of our forecast period.

Capex
• ISPH had announced at the time of its IPO in 2017 that it will inject
as much as EGP700mn of investments over the following five years.
ISPH’s historical capex and capex/net sales More than half of its investments will be in the form of leasing,
while the remainder will be capital expenditures. Its five-year
220 2.5% investment plan includes opening 3-4 distribution centers per year
200 as well as a number of vehicles to be added to its fleet. Historically,
180 2.1% 2.0% ISPH’s capex/revenues did not exceed the 2% mark, given its
160 197
140 1.5%
dependence on leasing. Going forward, we expect the bulk of
120 1.3% ISPH’s capex will take place in the next three years then will start
1.1%
100 1.0% stabilizing at a lower ratio of 0.2% of revenues from 2022 onwards.
80 0.7%
82
60 0.5% Dividends
40 56
20
40
0.0% • ISPH has historically distributed 65% of its profits on average in the
2014 2015 2016 2017 last four years, except for 2017 when it retained all its profits. Going
Capex (EGPmn) Capex/Net Sales
forward, we assume a dividend payout ratio of 50%, less than
Source: SHUAA Securities Egypt estimates historical average given ISPH’s need for cash in order to finance its
expansion plan.
Q3 2018 financial results
EGPmn Q3 18 Q3 17 y/y Q2 18 q/q

• ISPH has posted a net profit of EGP113.16mn (+27% y/y, +140% q/q) in
Q3 2018, implying an NPM of 3.2% versus 3.4% in Q3 2017 and 1.5% in
Net Sales 3,483 2,640 32% 3,070 13% Q2 2018. Annual earnings growth was mainly due to (1) 32% higher
net sales of EGP3.48bn, (2) 95% lower other expenses (due to the
Gross Profit 344 272 26% 249 38% absence of capital increase expenses), and (3) 11% lower financing
GPM 9.9% 10.3% 8.1%
expenses.
Opex 147 108 36% 131 12% • Meanwhile, quarterly earnings growth came as result of (1) an
Opex/sales 4.2% 4.1% 4.3% overall improvement in margins (GPM of 9.9% versus 8.1% in Q2
2018, EBITDA margin of 5.7% versus 3.8% in Q2 2018) as bonus and
EBITDA 197 164 20% 118 67%
EBITDA margin 5.7% 6.2% 3.8%
rebates are usually received from ISPH’s suppliers in the second half
of the year and (2) 13% higher net sales q/q.
EBIT 186 156 20% 107 74%
• While ISPH’s H1 2018 results were unpleasant, we are positive about
EBIT margin 5.4% 5.9% 3.5%
its Q3 2018 numbers. According to ISPH’s management,
Net profit 113 89 27% 47 140% performance in the second half of the year is usually stronger than
NP margin 3.2% 3.4% 1.5% in the first, which is confirmed by its Q3 set of results. As such, we
Source: Company reports believe that the company is in line management guidance to report
in excess of EGP250mn in earnings in 2018.

The Valuation
To value ISPH, we used a five-year DCF valuation model, including two
stages (a high-growth period through 2022 followed by a stable-
growth terminal period). We discounted ISPH’s free cash flow to the
firm (FCFF) using a moving weighted average cost of capital (WACC)
of 16.2%, derived from an average COE of 16.4% (weight of 96%) and an
average after-tax cost of debt of 11.0% (weight of 4%). We used a
terminal growth rate of 6%.
• Our ISPH’s COE assumptions are as follows:

1. 10-year US Treasury yield of 3%.
2. Egypt’s risk premium of 3.13%.
3. ISPH’s adjusted beta of 0.87.
• Moreover, we see ISPH’s COE decreasing through 2022, reflecting a
lower inflation environment in Egypt according to IMF forecasts as
well as our view of lower interest rates going forward. We used a
terminal WACC of 13.2%. Noting that ISPH’s weight of debt is
currently insignificant, we kept it the same in our valuation as the
company does not rely so much on debt. All in all, the DCF valuation
method yielded a 12-month price target of EGP13.20/share, implying
an upside potential of 25%.
• To complement our view, we assumed three different scenarios in
addition to our base-case one to better understand how ISPH’s
valuation would be impacted by changes in some KPIs (namely
market share and GPM) as well as the effect of ISPH’s ongoing legal
case on our valuation. For more details about the legal case, please
see Page 12.
Recommendation, Catalysts, & Risk
• Recommendation: Based on our DCF model, our 12M PT is
EGP13.20/share. Hence, we initiate coverage with an Overweight /
Moderate Risk (an expected total return of 25%).
• Catalysts: The increase in pharma products prices. ISPH winning the
legal case or settling for a fine lower than EGP1bn.
• Risks: More depreciation in EGP, which could lower the volume
produced and distributed in the market. ISPH losing the legal case
and having to pay a fine larger than EGP1bn. The emergence of on-
line retail pharmacy chains, disrupting ISPH’s and other incumbents’
market shares by relying less on intermediaries.
The Dream
• In the dream case, we assumed that ISPH will be able to increase its
terminal year market share to 30% (vs. 25% in our base case) on the
assumption that a higher numbers of small distributors will exit the
industry. We also assumed that ISPH will be able to expand its gross
profit margin from our terminal year target of 8.7% to 9.7% on
raising the gross profit margin set by the government to the
distributors from 8% to 9%. This scenario gave us a 12-month price
target of EGP18.61/share, implying an upside potential of 76% from
the current market price.

The Valuation (Cont.’d)

The Nightmare
• In the nightmare case, we assumed that the company will not be
able to improve its market share and would rather see it stabilize at
20% in the terminal year on more competition from large
distributors as well as resilient small distributors. This is in addition
to a deterioration in gross profit margin to be at 8% in the terminal
year on less discounts received from the suppliers and more
discounts given to clients coupled with paying a charges of
EGP1.4bn related to the legal case. This gave us a 12-month price
target of EGP7.06/share, implying a downside potential of 33% from
the current market price.
DCF valuation: Base Case Scenario

Economic Profit Analysis FY2018e FY2019e FY2020e FY2021e FY2022e TV
ROIC 69.8% 75.1% 87.3% 89.0% 101.2% 35.0%
WACC 20.5% 17.8% 15.4% 15.3% 15.1% 13.2%
Terminal growth rate 6.0%
EGPmn, except per-share figures FY2018e FY2019e FY2020e FY2021e FY2022e TV
NOPLAT 374 488 627 780 958 1,015
Non-Cash Items (D&A) 38 51 58 62 60
Gross Cash Flow 412 539 686 842 1,018
Change in Operating Working Capital (153) (74) (49) (168) (80)
Capital Expenditures (112) (91) (77) (52) (50)
Gross Investment (265) (165) (127) (220) (130)
Appropriation Items (23) (34) (46) (58) (73)
Free Cash Flow to the Firm (FCFF) 125 340 513 564 815
Present Value of FCFF 122 283 370 353 444 6,372

DCF Enterprise Value 7,945
Net (Debt)/ Cash 107
Minority Interest -
Long Term Investments -
DCF Equity Value 8,052
Number of Shares Outstanding 722
DCF Value (EGP) 11.15
1-year Price Target (EGP) 13.20
*Net (debt) / cash as of 31 December 2017

Our base-case valuation after taking into How can the legal case affect our base-case scenario for ISPH?
account the potential legal case charges
• Earlier this year, the Economic Court in Egypt issued a preliminary
DCF Enterprise Value 7,945
verdict against ISPH and three other pharma distributors, charging
Net (Debt)/ Cash 107
them with a total sum of EGP5.6bn. The charge against the four
Minority Interest -
players was for monopolistic acts in 2015 that were claimed to have
Long Term Investments -
Charges (1,400)
negatively affected retailers in the market. This incident harmed
ISPH’s stock which plummeted from a high of EGP12.47 on 18
DCF Equity Value 6,652 February 2018 to a low of EGP8.96 on 19 March 2018 (–28%). Later
Number of Shares Outstanding 722 on, the four defendants appealed to the Cairo Court of Appeals
DCF Value (EGP) 9.21 which did not issue a final ruling, having postponed the case five
1-year Price Target (EGP) 10.90
times, with the case set to take place on 19 December 2018. That
said, ISPH’s management is confident of winning the case.
However, we assume under this scenario that ISPH will lose the
case. Absent specifics as to what each of the four players are
charged, we assumed that the charges will be split equally amongst
the four players, implying an EGP1.4bn in charges against ISPH,
which we shaved off ISPH’s valuation.
PT sensitivity to Terminal WACC & TGR PT sensitivity to Terminal Market Share & Terminal
GPM
Terminal Growth Rate Terminal GPM
Terminal WACC
- 5.0% 5.5% 6.0% 6.5% 7.0% 13.20 6.7% 7.7% 8.7% 9.7% 10.7%
Terminal Market
11.2% 15.16 16.08 17.19 18.52 20.17 20.0% 6.81 8.78 10.74 12.71 14.68
Share
12.2% 13.43 14.09 14.86 15.75 16.82 22.5% 7.55 9.76 11.97 14.18 16.39
13.2% 12.15 12.64 13.20 13.84 14.58 25.0% 8.29 10.74 13.20 15.66 18.11
14.2% 11.11 11.49 11.91 12.38 12.91 27.5% 9.03 11.73 14.43 17.13 19.83
15.2% 10.29 10.59 10.91 11.27 11.67 30.0% 9.76 12.71 15.66 18.61 21.56
Source: SHUAA Securities Egypt estimates Source: SHUAA Securities Egypt estimates
12M PT sensitivity to different scenarios

Range Current Stock Price Target Stock Price
10.59 13.20
Terminal GPM/ Terminal Mkt. Share sensitivity analysis 6.81 21.56
Terminal WACC / TGR sensitivity analysis 10.29 20.17
Dream / Nightmare 7.06 18.61
DCF-based 12M PT vs Legal Case 10.90 13.20
52-week range 5.80 12.80
EGP 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00 20.00 22.00 24.00


Comparable Analysis
• Based on our numbers, ISPH is currently trading at a 48% premium
to global median forward P/E 2019 of 11.7x. This can be justified by
the expected high growth of 50% in 2019 earnings, compared to
global median earnings’ growth of only 7%.
Mkt cap Earnings

P/E EV/EBITDA
(USD mn) Growth
Company name Country 2016 2017 2018e 2019e 2016 2017 2018e 2019e 2018-2019e
Sigma Healthcare Ltd Australia 395 16.4x 22.3x 8.9x 12.0x 10.5x 14.7x 7.2x 8.2x -24%
Selcuk Ecza Deposu Ticaret ve Turkey 338 7.8x 7.4x 4.4x 3.8x 5.5x 5.1x 4.3x 3.5x 12%
Jointown Pharmaceutical Group China 3,975 38.4x 21.8x 20.5x 16.9x 24.8x 18.2x 13.5x 11.2x 26%
AmerisourceBergen Corp USA 18,578 12.7x 14.7x 13.5x 12.8x 10.8x 12.8x 9.0x 8.8x 7%
Cardinal Health Inc USA 15,755 20.6x 20.8x 10.7x 10.6x 9.3x 10.0x 7.5x 8.3x -2%
McKesson Corp USA 23,672 15.5x 13.6x 9.5x 9.0x 9.4x 4.8x 7.7x 7.8x -1%
Henry Schein Inc USA 12,796 23.9x 20.0x 20.5x 18.8x 14.9x 12.6x 14.0x 13.3x 8%
Patterson Cos Inc USA 2,356 19.9x 21.5x 14.7x 17.3x 12.1x 14.3x 9.7x 11.4x -15%
Neuca SA Poland 284 15.4x 12.9x 11.9x 11.1x 10.7x 8.5x 8.1x 7.6x 9%
Pharmaniaga Bhd Malaysia 191 30.1x 22.2x 12.3x 11.4x 13.0x 11.0x 9.1x 8.5x 9%
Global Peers' Average 20.1x 17.7x 12.7x 12.4x 12.1x 11.2x 9.0x 8.9x 3%
Global Peers' Median 18.2x 20.4x 12.1x 11.7x 10.7x 11.8x 8.6x 8.4x 7%
Ibnsina Pharma SAE Egypt 427 38.3x 32.8x 25.9x 17.3x 17.3x 13.4x 13.8x 10.3x 50%
Premium (discount ) from median 111% 61% 113% 48% 61% 13% 61% 23% 565%
Source: Bloomberg, SHUAA Securities Egypt estimates

The Financial Model

Income Statement (EGPmn) Per-Share Data
FY End: Dec FY2016a FY2017a FY2018e FY2019e FY2020e FY2021e FY2016a FY2017a FY2018e FY2019e FY2020e FY2021e
Total Revenue (Net) 7,206 9,586 12,401 15,555 19,133 23,160
COGS (6,637) (8,760) (11,344) (14,213) (17,466) (21,142) Price 5.8 8.3 10.6 10.6 10.6 10.6
GP 569 826 1,058 1,342 1,667 2,017 # Shares (WA,in mn) 672 672 722 722 722 722
Other operating (exp.)/ Inc. (340) (419) (537) (661) (799) (949) EPS 0.15 0.25 0.41 0.61 0.83 1.05
EBITDA 229 407 521 681 868 1,069 DPS 0.10 - 0.20 0.31 0.41 0.52
Depreciation & Amortization (27) (31) (38) (51) (58) (62) BVPS 0.46 0.62 1.15 1.41 1.76 2.20
Interest expense (74) (116) (59) (43) (39) (32)
Non-operating expenses (4) (38) (56) (16) - - Valuation Indicators
Net non-operating income., taxes (23) (53) (73) (128) (173) (219) FY2016a FY2017a FY2018e FY2019e FY2020e FY2021e
NP Before XO & MI 102 170 296 442 598 756
XO & Minority Interest - - - - - - PER (x) 38.3x 32.8x 25.9x 17.3x 12.8x 10.1x
Net Income 102 170 296 442 598 756 PBV (x) 12.5x 13.4x 9.2x 7.5x 6.0x 4.8x
EV/Sales (x) 0.6x 0.6x 0.6x 0.5x 0.4x 0.3x
Balance Sheet (EGPmn) EV/EBITDA (x) 17.3x 13.4x 13.8x 10.3x 7.8x 6.1x
FY End: Dec FY2016a FY2017a FY2018e FY2019e FY2020e FY2021e Dividend Payout Ratio 64.4% 0.0% 50.0% 50.0% 50.0% 50.0%
Current Assets Dividend Yield 1.7% 0.0% 1.9% 2.9% 3.9% 4.9%
Cash & Cash Equivalent 44 165 498 647 913 1,169
Marketable securities - - - - - - Profitability & Growth Ratios
Trade & other receivables 1,946 2,459 2,888 3,623 4,456 5,394 FY2016a FY2017a FY2018e FY2019e FY2020e FY2021e
Inventory 614 1,051 1,075 1,347 1,655 2,004 Revenue Growth 35% 33% 29% 25% 23% 21%
Other Current Assets 214 267 268 336 413 500 EBITDA Growth 52% 78% 28% 31% 27% 23%
Total Current Assets 2,818 3,942 4,730 5,953 7,438 9,067 EPS Growth 77% 67% 62% 50% 35% 26%
Fixed Assets (net) 219 372 458 508 535 532 GPM 8% 9% 9% 9% 9% 9%
Other Non-Current Assets 18 20 20 20 20 20 EBITDA Margin 3% 4% 4% 4% 5% 5%
Total Assets 3,056 4,334 5,207 6,480 7,993 9,619 Net Margin 1% 2% 2% 3% 3% 3%
Liabilities & Equity ROAE 36% 47% 47% 48% 52% 53%
Short-Term Debt 69 7 12 20 25 41 ROAA 4% 5% 6% 8% 8% 9%
Current Portion of LT Debt 13 26 16 13 11 8
Accounts Payable 2,520 3,701 3,978 4,945 6,077 7,241 Liquidity & Solvency Multiples
Other Current Liabilities 81 131 154 187 224 267 FY2016a FY2017a FY2018e FY2019e FY2020e FY2021e
Total Current Liabilities 2,683 3,864 4,161 5,166 6,338 7,556
Long-Term Debt 30 25 16 13 11 7 Net Debt (Cash) 68 (107) (453) (601) (866) (1,113)
Other Non-Current Liabilities 32 28 199 284 373 465 Net Debt/Equity 22% (26%) (55%) (59%) (68%) (70%)
Total Liabilities 2,744 3,918 4,376 5,462 6,722 8,028 Net debt to EBITDA 0.3x -0.3x -0.9x -0.9x -1.0x -1.0x
Minority Interest - - - - - - Debt to Assets 0.04x 0.01x 0.01x 0.01x 0.01x 0.01x
Total Equity 312 416 831 1,018 1,271 1,590 Current ratio 1.1x 1.0x 1.1x 1.2x 1.2x 1.2x
Total Liabilities & Equity 3,056 4,334 5,207 6,480 7,993 9,619
Consensus Estimates (EGPmn)
Cash Flow Statement (EGPmn) FY2018e FY2019e FY2020e
FY End: Dec FY2016a FY2017a FY2018e FY2019e FY2020e FY2021e Revenues 12,166 15,146 18,627
Cash from Operating 216 436 180 419 607 650 SHUAA Securities Egypt vs. Consensus 1.9% 2.7% 2.7%
Cash from Investing (79) (196) (124) (101) (86) (58) Net Income 307 449 591
Cash from Financing (125) (119) 277 (169) (254) (335) SHUAA Securities Egypt vs. Consensus -3.7% -1.5% 1.1%
Net Change in Cash 65 918 333 149 266 256 Fwd PER (x), Last Price 25.9x 17.3x 12.8x
Fwd PER (x), 12M - Price Target 32.2x 21.6x 16.0x
Capex (82) (197) (124) (101) (86) (58) Fwd DY (%), Last price 1.9% 2.9% 3.9%
a = Actual; e = Estimated Share price at 22-Nov-18
Source: Company reports, SHUAA Securities Egypt estimates

The Background
Shareholder Structure ISPH, which started in 2001, has become one of the leading
pharmaceutical distributors in Egypt and the second largest in terms
of market share. The company enjoys a nationwide distribution
Abdel
network of 55 operational sites, including distribution hubs and
Gawad & central warehouses, backed by a fleet of 654 vehicles serving over
Family, 35,000 retail pharmacies, hospitals, and wholesalers across Egypt.
16.5%
Free Float,
37.3% • History: ISPH was initially established in 2001 under the name
Mahgoub
Group,
Ibnsina Laborex by a group of Egyptian investors in partnership
16.2% with the French retailer Pinault Printemp Redoute (“PPR”) through
its subsidiary Eurapharma which is a leading distributor of
EBRD,
pharmaceutical products in Africa and French overseas territories.
Others 10.1%
Faisal
, 7.3%
Islamic
• The turnaround: Over the years, particularly during 2006-2008,
Bank, 12.6% ISPH’s management acquired PPR’s stake through a management
buy-out then changed the company name to Ibnsina Pharma and
Source: Company reports started to focus on optimizing cost to turn the company into
profitability.
• Robust growth: ISPH was very successful in growing its market
share from 10% in 2011 to 19.2% in 2017, thanks mainly to the robust
expansion plan that the company has implemented during 2009-
2012. To grow even more and enhance its margins, ISPH introduced
new revenue streams in 2013 (e.g. warehousing and transportation
services to pharma manufacturers and key FMCG brands).
• Gaining international attention: In 2015, the European Bank for
Reconstruction & Development (EBRD), a prominent and reputable
bank, acquired a 21% stake in ISPH for EGP383mn, valuing the
company at EGP1.82bn at the time. This was the first time that
EBRD has directly pumped investments in an Egyptian company, a
move that reflects EBRD’s confidence in ISPH and its outlook.
ISPH’s distribution network across Egypt

The Leadership
The management team behind ISPH’s success consists of the
following key members:
• Mahmoud Abdel-Gawad, Co-Founder and Co-CEO: Enjoying 28

years of experience under his belt working in the pharmaceutical
industry, Mahmoud has led ISPH into profitability since 2006. Prior
to founding ISPH, Mahmoud held several executive positions at
various pharmaceutical companies in Egypt and abroad. He holds a
bachelor’s degree in pharmacy from Cairo University and an MBA
from the Arab Academy for Science & Technology.
• Omar Abdel-Gawad, Co-Founder and Co-CEO: With over 17 years of
experience in the pharmaceutical industry overseeing ISPH’s
marketing and sales activities, he also helped along with Mahmoud
Abdel-Gawad in transforming ISPH into a profitable business. Prior
to becoming Co-CEO, Omar has held various positions, including
Marketing Manager, Sales Manager, and General Manager. He holds
a bachelor’s degree in economics from the American University in
Cairo (AUC) as well as an MBA from the Arab Academy for Science
& Technology.
• Momen Gomaa, CFO: With over 19 years of experience in finance
management, Momen is currently the CFO of ISPH, managing all the
financial activities of the company. Momen holds a bachelor’s
degree in commerce from Ain Shams University.
• Rabeea Marzouk, Director of Sales: Rabeea has been with ISPH for
over 16 years and is still leading the company’s sales activities,
including retail, telesales, bulk sales, distribution, fleet
maintenance, and tenders. Prior to joining ISPH, Rabeea held
several sales positions at reputable companies. Rabeea holds a
bachelor’s degree in veterinary medicine from Alexandria University
and an MBA from the Arab Academy for Science & Technology.
• Mohamed Adel, Director of Operations: With over 17 years of
experience in business operations efficiency, Mohamed has led the
launch of ISPH’s new third-party logistics 3PL service which reached
full capacity within a short period of time. Mohamed holds a
bachelor’s degree as well as an MBA in commerce from Ain Shams
University.
• Ibrahim Emam, Commercial Director: Ibrahim leads the
development of strategic supplier partnerships as well as import
and export activities in the company. He has been with ISPH for 17
years. Ibrahim holds a bachelor’s degree in commerce from Ain
Shams University and an MBA from the Arab Academy for Science &
Technology.
• Mohamed Shawky, Investor Relations Officer: With over 14 years
of experience in investor relations, Mohamed previously served as
Head of Investor Relations at reputable companies, including
Meezan Holding in Kuwait. Mohamed was nominated for Best
Investor Relations Professional in Kuwait. He has a bachelor’s
degree in economics from Cairo University and an MBA from the
Arab Academy for Science & Technology.

Disclosure Appendix
METHODOLOGY: When setting an investment and risk ratings, we utilize all publicly-available sources to build an understanding of the issuer’s
business model and hence its intrinsic value based on one or more valuation methods. To reach a valuation, we assess factors that we deem
relevant, including—but not limited to—macro, sector, and company-specific aspects.
INVESTMENT RATING: Depending on each issuer’s business model, we may use (1) an income approach, (2) a markets-based approach, (3) an
asset-based approach, and/or (4) sum-of-the-parts approach. In certain cases where we do not have our own financial and valuation models, we
may present the consensus rating/view. For all securities actively covered, we assign one of three investment ratings (Overweight, Neutral, or
Underweight) depending on the security’s expected total return (price + yield) over a 12-month investment horizon as compared to the security’s
Required Rate of Return (RRR) as calculated using the Capital Asset Pricing Model (CAPM) and adjusted for the Risk Rating we assign to the
security. Please read below for more details about our Risk Rating. Our assigned fair values are subjective and are estimates of the analysts where
the security(ies) covered will trade within the next 12 months. The assigned investment rating/fair value is only valid for a maximum of three
months from the date it was set.
RISK RATING: Based on the overall risk profile of each issuer/security covered, we assign one of three risk ratings (High, Moderate, or Low). The
risk rating is a function of a weighted assessment of the issuer’s (1) sector, (2) corporate profile, and (3) security and related volatility. The
assigned risk rating is only valid for a maximum of three months from the date it was set.
Analyst Certification
I (we), Mohamed Sobol, Equity Analyst, employed with SHUAA Securities Egypt, and author(s) to this document, hereby certify that all the views
expressed in this research report accurately reflect my (our) views about the subject issuer(s) or security(ies). I (we) also certify that no part of
my (our) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or view(s) expressed in this report. Also,
I (we) certify that neither myself (ourselves) nor any of my (our) close relatives hold or trade into the subject securities.
Head of Research Certification

I, Amr Hussein Elalfy, Head of Research of SHUAA Securities Egypt, confirm that I have vetted the information and all the views expressed by the
Analyst in this document about the subject issuer(s) or security(ies). I also certify that the author of this document, has not received any
compensation directly related to the contents of the document.
Return / Risk Profile Rating & Price Target History
30.0% Dividend yield Overweight Neutral Underweight Close 12M PT

25%
25.0% 14.00 10
Capital 13.00 9
appreciation/(depreciation) 12.00
20.0%
8
Expected Total Return (ISPH) 11.00 6
15.0% 10.00 5
9.00 4
Required Rate of Return

Return
8.00
3
10.0% (ISPH) 2
7.00 1
The "Neutral" border (H) 6.00 -
5.0%
0.0% The "Neutral" border (M)

0.00
0.18
0.36
0.54
0.72
0.90
1.08
1.26
1.44
1.61
1.79
The "Neutral" border (L)

Beta
Rating history
From To Date Analyst
Investment Rating NC Overweight / Moderate Risk 25-Nov-18 Mohamed Sobol
If
Total Return
12-month price target history
is … Overweight Neutral Underweight From To Date Analyst
None 13.20 25-Nov-18 Mohamed Sobol
Between RRR and Lower than 20% of
Low Higher than RRR
20% of RRR RRR
Risk Rating

Moderate Higher than RRR
40% of RRR RRR

High Higher than RRR
60% of RRR RRR
We have decided not to publish a rating on the stock due to

Not Rated
certain circumstances related to the company (i.e. special
(NR) situations).
Not Covered We do not currently cover this stock or we are restricted from
(NC) coverage for regulatory reasons.

Contact Details
 +(202) 16331
143, Bank Zone, 5th Settlement,
New Cairo, First Abu Dhabi Bank Building (6th Floor)
Cairo, Egypt
Disclaimer
This document has been issued by SHUAA Securities Egypt for informational purposes only. This document is not and should not be construed as
an offer or the solicitation of an offer to purchase or subscribe or sell any investment or subscribe to any investment management or advisory
service. SHUAA Securities Egypt has based this document on information obtained from sources it believes to be reliable. It makes no guarantee,
representation or warranty as to its accuracy or completeness and accepts no responsibility or liability in respect thereof or for any reliance
placed by any person on such information. Accordingly, no representation or warranty, express or implied, is or will be made and no
responsibility or liability is or will be accepted by SHUAA Securities Egypt or by any of its respective officers, employees, agents or affiliates in
relation to the accuracy, completeness or fairness of the information or opinions contained herein or any other written or oral information made
available to any interested party or its advisers and any such liability is expressly disclaimed. All opinions expressed herein are subject to change
without notice. This document may not be reproduced or circulated without the prior written consent of SHUAA Securities Egypt. SHUAA
Securities Egypt is regulated by the Financial Regulatory Authority under license number 91.
Issuer of Report
SHUAA Securities Egypt
Website: www.shuaasecurities.com
Copyright
Copyright © 2018, SHUAA Securities Egypt, ALL RIGHTS RESERVED. No part or excerpt of this document may be redistributed, reproduced, stored
in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the
prior written permission of SHUAA Securities Egypt.

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Ibnsina Pharma (ISPH)

Overweight / Moderate Risk

A Clean Bill of Health

SHUAA Research Page 1 of 19

SHUAA Research Page 2 of 19

The Story (Cont.’d)

Source: Company reports

Source: Company reports

SHUAA Research Page 3 of 19

The Story (Cont.’d)

Source: Company reports

Source: Company reports

SHUAA Research Page 4 of 19

The Story (Cont.’d)

Average price per unit (EGP) 15 18 25 29 33 37 41 45

3PL Pharma Services & Others 12 20 25 40 55 70 85 100

Pharma Dist. Revenues Breakdown

Wholesale 655 889 1,424 1,780 2,216 2,706 3,252 3,856

Tenders 653 868 913 1,198 1,503 1,848 2,237 2,672

Hospitals 164 217 265 353 443 545 659 788

Source: SHUAA Securities Egypt estimates

SHUAA Research Page 5 of 19

The Story (Cont.’d)

Total Pharma Sales (EGPmn) Growth y/y %

Avg. Price/unit Growth y/y %

Total health expenditure as a % of GDP for MENA countries

SHUAA Research Page 6 of 19

The Story (Cont.’d)

Source: Company reports

Regulators in the pharmaceutical industry in Egypt

Ministry of Health and

Egyptian Drug Health Insurance

National Organization for Central Administration National Organization Medical Supply

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The Story (Cont.’d)

Profit margins for distributors and pharmacists

Essential drugs 7.86% of ex-factory price 25% of ex-factory price

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The Numbers (Cont.’d)

Source: SHUAA Securities Egypt estimates

EGPmn Q3 18 Q3 17 y/y Q2 18 q/q

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• Our ISPH’s COE assumptions are as follows:

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The Valuation (Cont.’d)

DCF valuation: Base Case Scenario

Present Value of FCFF 122 283 370 353 444 6,372

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The Valuation (Cont.’d)

12M PT sensitivity to different scenarios

Terminal GPM/ Terminal Mkt. Share sensitivity analysis 6.81 21.56

Terminal WACC / TGR sensitivity analysis 10.29 20.17

Dream / Nightmare 7.06 18.61

DCF-based 12M PT vs Legal Case 10.90 13.20

52-week range 5.80 12.80

Source: SHUAA Securities Egypt estimates

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