Top and bottom lines strengthen annually and sequentially
SPMD reported 1Q21 revenues of EGP65 million, representing a QoQ growth of 7.2% and a YoY surge of 160%, which came slightly higher than our estimate of EGP62 million. Labs remain SPMD’s greatest revenue contributor (95.6% of 1Q21 top-line), generating revenues of EGP62.5 million. Bottom-line recorded EGP41 million (+35.8% QoQ, +470% YoY), out of which EGP18 million were contributed by Prime Speed.
Healthy bottom-line growth, despite lower income from Prime Speed
Bottom-line came lower than our estimate of EGP47 million, recording EGP41 million in 1Q21 (+35.8% QoQ, +470% YoY), which translates to a NPM of 62.6% (+13.2pps QoQ, +34.0pps YoY). SPMD’s operations generated net profit of EGP23 million in 1Q21 (up from EGP2.8 million in 4Q20 and up from EGP7.2 million in 1Q20), while Prime Speed contributed EGP18 million in 1Q21 (down from EGP27 million in 4Q20) to SPMD’s bottom-line figure. The drop in Prime Speed’s bottom-line is primarily attributed to the cancellation of flights to Saudi Arabia, which resulted in lost revenues of EGP70 million for Prime Speed, due to the travel certificates that have not been issued as a result. Management expects 2Q21 to be more in favor of Prime Speed, as travel certificates pick up and travel resumes to Saudi Arabia (by May 17, 2021).
Labs continue to drive top-line performance
Lab revenues more than doubled in 1Q21 compared to 1Q20, recording EGP62.5 million (out of which EGP6 million are Covid-related revenues), representing a QoQ growth of 7.0% and a YoY surge of 192%. This came on the back of SPMD’s aggressive expansion in the labs segment, with the company currently operating 82 labs (labs that have been operational for more than six months), out of its total network of 110 labs. Total number of corporate patients recorded 123K in 1Q21, compared to around 110K corporate patients in 4Q20 (+11.8% QoQ). The average revenue per corporate patient recorded EGP247 in 1Q21, with the average number of tests per corporate patient stable at 4.3 tests. Total number of cash patients rose by around 7.5% QoQ, reaching 99.7K patients in 1Q21. The average revenue per cash patient came in at EGP262 in 1Q21, with the average number of tests per cash patient recording 3.7 tests. Polyclinic revenues recorded EGP2.9 million in 1Q21 (4.4% of 1Q21 top-line), up 11.4% QoQ and up 1.6% YoY, implying gradual recovery to Pre-Covid levels.
GPM faces squeeze, in line with expectations
GPM recorded 53.1% in 1Q21 (-8.3pps QoQ, +1.6pps YoY), translating to a gross profit of EGP35 million (-7.4% QoQ, +168% YoY). The sequential drop in GPM is primarily attributed to a QoQ increase in COGS of 30.4%. In addition, management has earlier highlighted that the GPM of labs is expected to drop in 2021 relative to 2020 figure, while stabilizing at 37% within 3 years’ time. The downward trend in GPM is mainly attributed to SPMD’s plan to grow its corporate client base, which would pressure GPM based on pricing discounts received by corporates.
Expansion plans pressure EBITDA margin
EBITDA margin dropped by 0.7pps QoQ and 2.1pps YoY in 1Q21, recording 42.6%. The slight decline in EBITDA margin in 1Q21 primarily reflects the aforementioned drop in GPM, which was partially alleviated by a sequential drop in SG&A expenses in 1Q21 (-40.5% QoQ), with SGA/sales recording 14.4% in 1Q21 from 25.9% in 4Q20, minimizing the impact on EBITDA margin in 1Q21. However, the company’s aggressive expansion plans drove SG&A expenses up by 447% YoY, which dragged down EBITDA margin on an annual basis.
Recent Updates on Prime Speed’s potential acquisition
In light of SPMD’s decision to acquire the remaining 70% of Prime Speed, SPMD has recently released the revised IFA FV studies for both SPMD and Prime Speed. The IFA valued 70% of Prime Speed at EGP1,001 million, implying a total value for Prime Speed of EGP1,430 million. Moreover, the IFA valued SPMD at a FV of EGP2.74/share, which implies a total value for SPMD of EGP3,039 million. Based on the IFA’s revised FVs of Prime Speed and SPMD, and noting that SPMD currently owns a stake 30% in Prime Speed, this implies that SPMD should issue 365 million new shares to finance the acquisition of the remaining 70% of Prime Speed, implying a stake of 24.78% for Prime Speed. Accordingly, this brings the combined entity value to EGP4.04 billion, which translates to a FV/share of EGP2.74, implying no dilution and no value accretion, but a larger organization.
Outlook remains positive for 2021; Maintain Overweight
SPMD plans to proceed with its aggressive expansion plans, targeting to end 2021 with 140 Speed Labs and around 3 polyclinics (compared to 98 Speed labs and one polyclinic in 2020). In addition, the soft opening of Speed Hospital (80% completed YTD) is expected to be during 1H21, with management highlighting that the hospital could break-even by the end of 2021. Management expects SPMD’s operations to generate a bottom-line growth of at least 50% in 2021, estimating net profit to record EGP100 million in 2021, excluding investment income from Prime Speed. In addition, management has previously noted that Prime Speed is expected to record a bottom-line of at least EGP500 million in 2021 (out of which EGP150 million would be SPMD’s share, assuming no consolidation). This would consequently translate to a bottom-line of EGP250 million for SPMD (assuming no consolidation). On a separate note, management highlighted in 1Q21 results conference call that there are very positive developments for SPMD that should be announced within the coming weeks. SPMD is currently trading at 2021f P/E of 9.0x and EV/EBITDA of 18.7x.