Demand recovery was mainly interrupted by higher prices to mitigate higher input costs
Egypt’s annual headline inflation accelerated to 5.7% in August from 5.4% in the previous month, according to data posted by the Central Agency for Public Mobilization and Statistics (CAPMAS). Monthly prices increased 0.1% m-o-m compared to an increase of 0.9% m-o-m in July, with food and beverage prices showing no monthly increase compared to a rise of 0.5% m-o-m in July, the data showed. (CAPMAS)
Our comment: August inflation came in better than our estimate of 0.8% m-o-m and 6.4% y-o-y.
SODIC (OCDI EY): The company’s 2Q21 net income grew c3.1x y-o-y to EGP122m, its earnings release showed. Revenue increased c39% y-o-y to EGP1.02bn and gross profit grew c60% y-o-y to EGP370m while gross profit margin widened 5 pp to c36%, it added. Gross contracted sales for the quarter also grew c87% y-o-y to EGP1.91bn, it added. Units delivered during the quarter dropped c6% y-o-y to 146 units while units sold increased c62% y-o-y to 288 units, it also said. (Company data)
Our comment: SODIC delivered a healthy set of numbers across all operational figures with net income coming c10% ahead of our estimate. Revenue came c5% ahead of our estimate of EGP974m which was mostly driven by delivered units coming c3% ahead of our estimate of 142 units as the company began deliveries at EDNC (which accounted for c34% of the quarter’s delivery value). Gross profit came impressively c19% ahead of our estimate of EGP310m as gross profit margin beat our c32% estimate by c4 pp which the company attributed to the delivery of more advanced phases and continued margin improvement. SG&A expenses and other expenses during the quarter were c19% ahead of our estimate of EGP174m but this did not offset the high gross profit margin as the reported EBIT came c20% ahead of our estimate of EGP135m with the EBIT margin beating our c14% estimate by 2 pp to c16%. Net financing income was negligible with only EGP3m, lower than our estimate of EGP7m leading pre-tax profit to beat our estimate by c16%. A higher-than-expected tax charge of EGP42m compared to our estimate of EGP32m narrowed the beat to c12% in pre-minority income as the effective tax rate stood at c25%. A minority charge of EGP1m further narrowed the beat to c10%. In terms of gross sales, the company’s EGP1.91bn of gross sales came c22% ahead of our estimate of EGP1.57bn but a higher-than-expected cancellation rate of c10% (c3 pp higher than our estimate of c7%) narrowed the beat in net contracted sales to c18%. The beat was mainly volume-driven as the number of units sold came c15% ahead of our estimate of 250 units while the average price per unit sold came c6% ahead of our estimate of EGP6.27m/unit and stood at EGP6.63m/unit. The reported gross sales and revenue figure leads to a 2Q21 backlog of EGP8.97bn, c3% ahead of our estimate. The most impressive beat in the company’s results was cash collections, which came at an impressive c63% ahead of our estimate of EGP800m. Construction spending came slightly lower than our estimate of EGP775m and stood at EGP705m. Residential sales contributed c97% of 2Q21 sales as commercial sales were negligible. Sales were mainly from SODIC East which contributed c29% of the total, followed by Villette at c20%, with the remaining c52% coming from West Cairo project The Estates and Karmell. Deliveries were mainly from October Plaza which accounted for c32% of units delivered. Other West Cairo project units delivered accounted for c30%, East Cairo accounted for c36% of units delivered while the North Coast accounted for a negligible c1%. Bank debt to equity increased to 0.40x as of 2Q21 from 0.38x as of 1Q21 due to the company’s increased investment in its recurring income portfolio but still remains low, in our view.
SODIC (OCDI EY): The Sheikh Zayed City Development Authority has accepted an offer from SODIC’s fully owned subsidiary, Al Yosr for Projects and Real Estate Development “Al Yosr,” to acquire a 123-feddan (0.52m sqm) land plot in West Cairo, according to an emailed statement. The plot is strategically located in New Zayed, directly adjacent to “The Estates'', SODIC’s upscale signature community and will serve as an extension to the existing project, the statement added. The new plot is expected to add some 235,000 sqm of residential BUA generating sales of around EGP10.0bn over the next six years as an initial estimate. The Sheikh Zayed City Development Authority has accepted the offer for the plot for a consideration of EGP2,385/sqm of land, amounting to a total land cost of some EGP1.24bn, payable over six years. The acquisition of this plot adds some 518,000 sqm of land to SODIC’s land bank which stood at some 5.6m sqm as of 4Q20, bringing SODIC’s total unlaunched land to around 6.1m sqm that are well diversified among the company’s main markets and offer nine to ten years of visibility on future sales, the statement also said. (Company release)
Our comment: The new land acquisition increases SODIC’s undeveloped land bank by c9% from the most recently announced undeveloped area of 5.60m sqm as of 4Q20, while it increases the company’s sellable BUA by c4% and the value of its sellable inventory by c7%. In the release, the company’s guidance for the project includes (1) EGP10.0bn of sales proceeds, (2) a GLA of 0.52m sqm, (3) a six year sales period, (4) a land cost of EGP1.23bn, and (5) a land payment period of six years. The mentioned givens entail an average selling price of EGP42,553/sqm over the lifetime of the project, while the announced area and BUA entail a FAR of 0.45x. To quantify a value for the project we use a 7-year payment plan with a c10% down payment and equal installments for the six year sales timeframe, yielding a total collection period of 12 years to account for the 6-year sales schedule. On the costs side, we derive a development cost using a blended margin of c43% (similar to SODIC’s Villette), while we use a development schedule of 4 years that is back loaded. The c43% margin includes the BUA development component which we estimate to be EGP4.50bn in addition to the EGP1.23bn of land costs. We also deduct SG&A expenses of c5% of sales, apply an effective tax rate of 22.5%, and use a WACC of c17% to discount the cash flows. The project is likely to see negative cash flows during the early years due to the land payments to NUCA but we expect positive cash flows to begin by year 5, on our numbers. The project’s details in addition to our assumptions yield an NPV of EGP630m for the project, EGP1.77/share and an NPV of EGP1,219/sqm. Our TP for SODIC is EGP30.0/share so the new project adds c6% to our valuation but we believe the stock price will respond more to the potential acquisition by Aldar Properties (ALDAR UH).
Orascom Construction (ORAS EY, OC DU): The company added USD1.1bn to its backlog in 2Q21, marking a c52% y-o-y increase and taking the estimated consolidated backlog to USD5.8bn as at the end of June, it announced. Projects in Egypt comprised 32% of new awards as the group added contracts across the water and industrial sectors, while new awards in the US accounted for 68% of the total due to sizable projects in the data center sector. (Company release)
Our comment: The new awards figure comes a substantial c44% ahead of our estimate of USD766m, with the US beat more than offsetting the miss from Egypt. Management had hinted that 2Q21 would make up for the weak awards in the previous quarter especially in the US in data centers, with 1H21 overall now looking strong, though the mix is clearly less optimal for margins. We expect the relatively weak awards from Egypt will be made up for as the company signs the final contracts for the high-speed rail likely in 3Q21 when the financing is complete, among other projects in the transportation sector pipeline. The industrial segment in Egypt is seeing initial signs of a comeback, in our view, though still mainly government related, with this quarter’s bit likely reflecting the two EGP2.6bn textile manufacturing complexes signed last week. The backlog figure, however, suggests executions during the quarter could have come in below our expectations, which we will be able to confirm along the release of the 2Q21 financials.
Talaat Moustafa Group Holding (TMGH EY): Rawasy for Engineering and Development, owned equally by the National Bank of Egypt (NBE) and Banque Misr, has finalized the acquisition of real estate assets in the company’s Madinaty project for a value of EGP9.00bn, according to the legal firm that oversaw the execution of the transaction. (Al Borsa)
Our comment: This is positive news for TMG providing it with decent liquidity to meet its financing needs in 2021 and boosting its profitability. The value of this transaction is more than double the August 2020 land sale, worth EGP4bn for an area of 341,000 sqm, by TMG to the two banks under their other JV company First Design for Investment and Urban Development at an implied price of EGP11,730/sqm. The land area of the EGP9bn deal has yet to be disclosed in order to calculate the price per sqm, so applying the August 2020 price per sqm to the EGP9bn deal value implies an area sold of 767,263 sqm. We believe the high price per sqm is rewarding and compensating the company for the lost opportunity cost of developing such land.
Emaar Misr (EMFD EY): The company’s 1Q21 consolidated net income increased 2.03x y-o-y to EGP529m, according to its audited financial statements. Revenue grew 6.37x y-o-y to EGP1.54bn, and gross profit surged 22.1x y-o-y to EGP621m as gross profit margin expanded c29 pp y-o-y to c40%, it added. The company restated its 1Q20 financials as it adopted changes to its accounting with regards to its financial instruments, revenue recognition, and rental revenue recognition, it also said. (EGX)
Our comment: Emaar delivered strong quarterly results aided by strong Marassi deliveries, unusual during the first quarter given the seasonal nature of the project. Revenue from Marassi and Uptown Cairo came ahead of our estimates by c114% and c21%, respectively. This was enough to offset the c15% miss in Mivida deliveries and led to total revenues coming c31% ahead of our estimate of EGP1.18bn. Gross profit margin came largely in line with our estimate of c39%, missing it by only 1 pp. This was despite Marassi margins missing our estimate by c6 pp as Mivida delivered exceptional margins of c54% while Uptown Cairo also delivered a high margin of c45%. SG&A expenses came in line with our estimates, only c2% higher with the strong deliveries contributing to the c55% beat in the reported EBIT. Net interest income (including yields from treasuries) continued to drop and came c26% lower than our estimate despite a minor change in the company’s 4Q20 cash and treasuries balance mainly due to the drop in interest rates. Other income reached EGP46m, with the bulk of the amount from cancellation fees. The other income components (including an EGP11m provision reversal) has partially offset the lower-than-expected treasury bill yields, narrowing the beat on the net income level to c17% compared to our estimate of EGP451m. The strong operational numbers lowered the contribution of interest to net income to c43% compared to our estimate of c67%. The company’s cash and treasuries balance stood at EGP11.0bn by the end of the quarter, which is EGP2.43/share, c7% higher than Thursday’s closing price of EGP2.25/share. The company’s financials show that it has adopted changes to EAS 47, 48, and 49 effective January 2021. EAS 47 is related to the measurement of financial instruments; however, the amendments showed no change to Emaar Misr’s 4Q20 ending cash and treasuries balance. Emaar Misr also adopted changes to EAS 48 which led to a EGP55.2m increase in 1Q20 net income classified as sales commission. There were no changes in 1Q20 property revenue, after applying the amendments. The company also adopted changes to EAS 49 dealing with leased assets which led to a negligible EGP1.49m increase in 1Q20 rental revenue and EGP0.94m decline in depreciation and EGP0.20m decline in financing expenses.
Talaat Moustafa Group Holding (TMGH EY): The first phase of the company’s 5,000-feddan project in Capital Gardens, Noor City, will be completed in a 4-year timeframe, the company’s CEO announced. The entire project will be completed in a 15-year timeframe over 10 stages, he added. Sales from the project are estimated at EGP800bn and investments at EGP500bn, he also said. The New Urban Communities Authority (NUCA) is entitled to an in-kind built-up area (BUA) of 2.4m sqm of the project, according to the minister of housing. (Bloomberg, Al Borsa)
Our comment: While the project is not included in our valuation for TMG of EGP17.2/share, we estimate it could add EGP4.67/share to our valuation. In our estimate, we used expected proceeds of EGP826bn, and expected investments of EGP500bn, implying a GPM of 39.5%. We expect the project to generate sizable pre-sales in 2Q21, possibly the highest contribution to the yearly sales, with management guiding for pre-sales of EGP16.6bn for 2021. The company has introduced a 15-year payment plan for the first time, according to marketing material, which we believe can boost sales of the first phase.
Obourland Food Industries (OLFI EY): The company’s consolidated 1Q21 net profit increased c3% y-o-y to EGP69.8m, its audited financial statements showed. (EGX)
Our comment: The reported net income comes largely in line with our estimate of EGP69.6m, as slightly higher-than-expected margins, lower-than-expected net financing charges, and higher-than-expected other non-operating income, have largely offset the higher-than-expected SG&A expenses. Revenue increased c14% y-o-y to EGP664m, broadly in line with our estimate of EGP664m. Gross profit (including depreciation) increased c9% y-o-y to EGP157m, largely in line with our estimate of EGP153m, with only c2% deviation. This implies a gross profit margin for the quarter of 23.6%, 1.0 pp lower than a year earlier, but 0.5 pp higher than our estimate. SG&A expenses were up c15% y-o-y to EGP66.8m, some c10% higher than our estimate of EGP60.5m, wiping out the slight beat on the gross profit level, and causing a c3% miss on the EBITDA level to EGP106m, which is an increase of c5% y-o-y. EBITDA margin for 1Q21 came in at 16.0%, 1.4 pp lower than a year earlier and 0.5 pp lower than our estimate. Some c40% lower-than-expected net financing charges of EGP1.8m, down c35% y-o-y, along with a c5x higher-than-expected other non-operating income of EGP2.3m, up c83% y-o-y, and some EGP0.3m booked in FX gains, have wiped out the miss on the EBITDA level and caused the bottom line to be largely in line with our estimate. On a segmental breakdown, the gross white cheese sales increased c11% y-o-y to EGP620m, only c2% below our estimate of EGP631m. Looking further into the white cheese segment, the gross unprocessed cheese sales rose c10% y-o-y to EGP612m, missing our estimate of EGP618m by only c1%, mainly on lower-than-expected effective selling price, given that the white cheese volume came in largely in line with our estimate at c24,700 tons, up c6% y-o-y. The company increased its prices by c5% since 4Q20, missing our estimate of c6%. As for the gross processed cheese sales rose c3x y-o-y to EGP8.2m, missing our estimate of EGP13.0m by c37%, mainly on c41% lower-than-expected volume at c144 tons, up c3x y-o-y. The y-o-y surge in the processed cheese sales was mainly following the strong performance of the glass-jar product coupled with the introduction of the new processed cheese product “Mafrooda” which was launched in October. The total net cheese revenue came in c3% below our estimate at EGP610m (up c11%y-o-y), on some c3x higher-than-expected discounts (up c51% y-o-y). The white cheese segment's gross profit came in largely in line with our estimate at EGP148m, a rise of c9% y-o-y, leaving margins at 24.2%, 0.5 pp lower than a year earlier, but 0.6 pp higher than our estimate. We attribute the higher-than-expected margins to higher-than-expected cost savings from the installation of the three new Tetra Pak A3 speed production lines and lower-than-expected raw material costs. As for the milk, its gross sales increased c93% y-o-y to EGP48.9m, exceeding our estimate of EGP32.1m by c52%, mainly on c43% higher-than-expected volume sold of c4,200 tons, a rise of c2x y-o-y. The y-o-y surge in milk sales came as a result of the company’s marketing plan and activities to increase its presence and market share and its newly launched 200ml flavored milk product. While gross juice sales dropped c12% y-o-y to EGP7.0m, c6% below our estimate of EGP7.5m, mainly on c5% lower-than-expected volume at 800 tons, down c6% y-o-y. The juice segment has been negatively impacted by COVID-19 and is facing fierce competition. Discounts and promotions for milk and juice products came in c18% higher than our estimate at EGP2.5m, c39% y-o-y higher than a year earlier, leaving net sales from both segments at EGP53.3m, beating our estimate of EGP37.4m by c43%, and up c70% y-o-y. The milk and juice segments’ gross profit increased c46% y-o-y to EGP10.6m, beating our estimate by c99%, leaving margins at 19.8%, 3.3 pp lower than a year earlier, but 5.6 pp higher than our estimate. The company mentioned in its earnings release that it will develop a new plan for the juice segment in 2021 and will continue to improve its gross profit margin for these businesses.
By Noha Baraka/ Wednesday, May 5, 2021
Egypt’s passenger car (PC) sales increased c67% y-o-y to 19,525 cars in March, compared to a drop of c2% y-o-y to 16,310 cars in the previous month, according to a report by the Automotive Marketing Information Council (AMIC). Bus sales increased c10% y-o-y to 2,056 buses, according to the report. (AMIC)
Our comment: Local PC sales came in c12% above our estimate for the month of 17,400 cars. Initial numbers from the AMIC report point to total GB Auto (AUTO EY) sales of 4,476 cars in March, which is c25% higher than our estimate of 3,596 cars, and c2x higher than a year earlier. This implies that the total market share during the month was 22.9%, which is 2.3 pp higher than our estimate, and 5.7 pp higher than a year earlier. Hyundai sales rose c3x y-o-y to 3,692 cars during March, c36% higher than our estimate of 2,710 cars, mainly due to the sale of more than 2,500 cars of Tucson NX4e new model which was recently released, exceeding our estimate by c52%. Chery’s sales increased c20% y-o-y to 779 cars, missing our estimate of 886 cars by c12%. Mazda sales increased c3x y-o-y to 5 cars in March, unlike our estimate of no sales during the month. There were no Geely cars sold, which is in line with our estimate.
By Noha Baraka / Wednesday, 5 May, 2021
Eastern Company (EAST EY): The company’s 3Q20/21 net profit grew c48% y-o-y to EGP1.35bn, its earnings release showed. (Company release)
Our comment: This came in only c4% higher than our estimate of EGP1.30bn, mainly on higher-than-expected net financing income (including FX gains/losses) which have more than offset the higher-than-expected SG&A expenses and some lower-than-expected other non-operating income. Total revenue grew c8% y-o-y to EGP3.98bn, exactly in line with our estimate, as some c5% higher-than-expected local cigarette revenue has largely offset the c14% miss in under-license revenue. Local cigarette revenue grew c14% y-o-y to EGP3.31bn, exceeding our estimate of EGP3.16bn by only c5%, mainly on a c4% higher-than-expected volume sold of 17.1bn sticks, up c11% y-o-y and c2% higher than the company’s target for the quarter, mainly due to the increased production capacity supported by the enhanced efficiency, the use of new machinery, and the maintenance of the existing ones. As for the under-license business, its revenue dropped c19% y-o-y to EGP495m, missing our estimate of EGP579m by c14%, mainly on a c12% lower-than-expected volumes shipped of 4.60bn sticks (a drop of c15% y-o-y), leaving the effective toll fee per 1,000 sticks at EGP108, c3% lower than our estimate, and c5% lower y-o-y. Gross profit grew c15% y-o-y to EGP1.70bn, in line with our estimate of EGP1.70bn, leaving margins at 42.6%, 2.6 pp higher than a year earlier, and only 0.1 pp lower than our estimate. SG&A expenses grew c6% y-o-y to EGP244m, c10% higher than our estimate of EGP223m, representing 6.1% of sales, 0.1 pp lower than a year earlier, but 0.5 pp higher than our estimate. EBIT grew c17% y-o-y to EGP1.45bn, broadly in line with our estimate of EGP1.48bn, with only c2% deviation, leaving margins at 36.5%, 2.7 pp higher than a year earlier, and only 0.6 pp lower than our estimate. The higher-than-expected SG&A expenses, along with some c25% lower-than-expected other non-operating income, were more than offset by some c49% higher-than-expected net financing income (including FX gains/losses) of EGP241m, c4x y-o-y higher, resulting in a c4% beat on the bottom line. More to follow once the company publishes its financial statements. It is worth mentioning that early signs suggest that 4Q20/21e is showing the continuation of the strong positive results of the previous 9M20/21, despite the continued impact of the pandemic on the molasses business, the company announced in its earnings release.
Foreign holdings in Egyptian T-bills increased to USD23.7bn by the end of July from USD22.9bn by the end of June, according to Central Bank of Egypt (CBE) data. (Al Borsa)
The Egyptian government committee in charge of the indexation of gasoline prices is expected to meet early next month to set prices for 4Q21, according to unidentified sources familiar with the matter. (Al Mal)