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.