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.