GB AUTO (AUTO EY): The company reported consolidated 2Q20 net income of EGP116m, reversing a new loss of EGP19.1m a year earlier, its financial statements showed. (Company release)
Our comment: This comes largely in line with our estimate of EGP119m, with only c3% deviation. Auto and Auto related business net loss narrowed to EGP20.0m in 2Q20, from EGP159m a year earlier, largely in line with our estimate of EGP20.7m, with only c4% deviation. Auto and auto related business revenue dropped c39% y-o-y to EGP2.88bn, which is largely in line with our estimate of EGP2.86bn, while gross profit also dropped c19% y-o-y to EG401m, beating our estimate of EGP393m by only c2%. Gross profit margin for the period stood at 13.9%, 3.4 pp higher than a year earlier, and only 0.2 pp higher than our estimate of 13.7%. Some EGP169m booked during the quarter as other operating income (of which EGP142m are related to a sale of land), came in c18% higher than our estimate. This, along with c27% lower-than-expected provisions (down c13% y-o-y) have more than offset the c3% higher-than-expected SG&A expenses (down c4% y-o-y), suggesting a more sizable beat of c15% on the EBIT level to EGP260m (up c35% y-o-y). This implies an EBIT margin of 9.0%, 4.9 pp higher than a year earlier and 1.1 pp higher than our estimate. Some EGP44m booked as FX losses and EGP27m in income taxes during the quarter have more than offset the c14% lower-than-expected net financing charges (down c46% y-o-y), diluting the beat on the EBIT level and causing a slight miss on the bottom line level of c4%. Segmental breakdowns showed that the higher-than-expected gross profit coming from regional operations and commercial vehicles (CVs) have largely offset the lower-than-expected Egypt’s 2- and 3-wheelers gross profit. Regional operations revenue dropped c77% y-o-y to EGP418m, c33% higher than our estimate, while gross profit dropped c55% y-o-y to EGP65.8m, beating our estimate of EGP29m by 2.2x as we believed that the coronavirus impact would be more pronounced given that Iraq had a complete lockdown for a longer-period of time compared to Egypt. As for the CVs, the business revenue dropped c17% y-o-y to EGP224m, 2.1x higher than our estimate, mainly on higher-than-expected effective selling price which we largely attribute to the sales mix. While the business gross profit dropped c59% y-o-y to EGP27.6m, 3.6x higher than our estimate, leaving margins at 12.3%, 12.7 pp lower than a year earlier, but 4.9 pp higher than our estimate. While Egypt’s 2-and 3-wheelers’ revenue grew c82% y-o-y to EGP532m on a more stable regulatory environment, it missed our estimate of EGP756m by c30% mainly on c28% lower-than-expected volume sold. The business gross profit grew 2.5x y-o-y to EGP101m, missing our estimate of EGP153m by c34%, leaving margins at 18.9%, 5.4 pp higher than a year earlier, but 1.4 pp lower than our estimate. It is worth mentioning that Egypt’s passenger cars (PCs) revenue dropped c27% y-o-y to EGP1.10bn, largely in line with our estimate of EGP1.13bn, as volumes dropped c22% y-o-y to 4,166 cars sold during the quarter largely in line with our estimate of 4,152 cars. The business gross profit grew c38% y-o-y to EGP96.3m, exactly in line with our estimate, leaving margins to stand at 8.7%, 4.6 pp higher than a year earlier, and 0.2 pp higher than our estimate. The company mentioned the reason for the y-o-y drop in volumes of both Egypt’s PCs and 2-and 3-wheelers due to the coronavirus outbreak and the closure of the traffic department and the presence of Ramadan and Eid which are typically low seasons for vehicles. As for GB Capital, revenue grew c8% y-o-y in 2Q20 to EGP1.32bn, missing our estimate of EGP1.38bn by c5%, mainly on c10% lower-than-expected other revenue (non-interest income). The business gross profit grew c31% y-o-y to EGP523m, c10% above our expectation, mainly on 2.0 pp lower-than-expected effective interest rate which resulted in c11% lower-than-expected cost of fund, implying a gross profit margin of 39.7%, 7.0 pp higher than a year earlier, and 5.3 pp higher than our estimate. Net interest margin for the business stood at 19.2% during the quarter, which is 9.0 pp higher than a year earlier, beating our estimate of 18.0% by 1.2 pp, thanks to its asset/liability duration mismatch through lending at fixed interest rates while borrowing at variable ones. Some c24% lower-than-expected provisions have more than offset the c15% higher-than-expected SG&A expenses and c36% lower-than-expected other operating income, suggesting a more sizable beat on the EBIT level of c12% to EGP250m, leaving margins at 19.0%, flat y-o-y, but 2.7 pp higher than our estimate. However, some 5.0 pp higher-than-expected effective tax rate have wiped out the beat on the EBIT level, leaving the business bottom line largely in line with our estimate to stand at EGP136m (down c20% y-o-y).