Ezz Steel has just reported 4Q2015 financial results, showing a positive earnings figure of EGP91 million, after nine consecutive loss making quarters, compared to losses of EGP172 million in 3Q2015 and losses of EGP235 million in 4Q2014. The announced earnings comes as a positive surprise to our published estimates for a mere EGP9 million positive earnings figure, mainly on a one-off gain of EGP118 million at EFS related to contract revisions with EFS's supplier of industrial gases. Following the release of EZDK's results, we had made note of a possible upside potential to the Ezz steel consolidated results on the back of this one-off gain and estimated that Ezz Steel's 4Q2015 results could reach up to EGP100 million. Excluding the impact of the said one-off gain, Ezz Steel would have reported a loss of EGP26 million. Despite this, operational results continued to show signs of recovery as gross margins expanded significantly to 13.5% versus 3.9% in 4Q2014 and 4.4% in 3Q2015, primarily on i) improved natural gas supplies, following end of summer months; ii) a decline in raw material costs during the quarter (iron ore: -15%, Scrap: -17%); and iii) as steel prices in Egypt were resilient and held flat Q-o-Q. We expect this improvement in margins will continue to play out in 2016 as i) DRI integration levels increase further with the new DRI plant now being online; and ii) as the decline in gas prices should add to the company's cost advantage versus local and imported scrap based production.   A turnaround in profitability is in the making; Buy: The positive set of results affirms our call for the start of a turnaround in profitability at Ezz Steel, as the operating environment in Egypt has begun to show promise. Prices in Egypt have remained resilient versus global steel exporters (Turkey and China) and continue to trade at premium prices, a factor that was driven predominantly by i) the application of antidumping fees in Egypt; and ii) the shortage in FX, which is hindering the ability of traders to bring in imported finished steel volumes. On the cost side, the recent decision to cut natural gas prices to USD4.5/mmbtu from USD7/mmbtu is expected to boost margins even further and lead to a USD25/tonne margin expansion on its own, while the improvement in natural gas supplies will also lead to improved DRI integration and healthier margins for the entire group. This higher DRI integration level will also be boosted by the introduction of the new DRI plant at ERM, which has just begun operations in January and would feed into margins starting in 1Q2016. Nevertheless, we remain cautious of possible FX losses, especially in 1Q2016, as the company has a heavy exposure to foreign currency debt.   Overall, given the improvement in Ezz Steel's results set in 4Q2015, along with the expected improvement in the company's cost base on i) higher DRI integration; and ii) lower gas costs, we think that the improved profitability will lead to a healthy positive bottom-line in 2016; hence, given the expected depressed multiples in 2016 of c6.7x, we reiterate our Buy rating on the stock. (Earnings release, Ahmed Hazem Maher)     Ezz Steel: EGP9.38 as of 30 March 2016, Rating: Buy, FV: EGP14.00 per share, MCap: USD574 million, ESRS EY / ESRS.CA