Oriental Weavers: 1Q21 – Exports revive; margins reach record-high levels

  • Higher volumes sold boosts topline
  • Record-high margins driven by lower COGS/Sales and lower raw materials prices secured in 4Q20
  • Recovery in demand expected to continue in 2021

Higher volumes sold boosts topline

ORWE recorded a topline of EGP2.763 billion in 1Q21 (down 1.9% QoQ but up 21.8% YoY) in line with our expectations of EGP2.639 billion.

Export revenues, which constitute 67% of total revenues of 4Q20, dropped by 1.5% QoQ but increased by 31.3% YoY to reach EGP1.86 billion for the quarter. This is the result of a 1.5% QoQ and 33.1% YoY increase in export volumes sold offsetting a drop of 2.9% QoQ and 1.4% YoY in average selling price. ORWE’s performance continued improving in 1Q21 despite the low seasonality of the first quarter. ORWE’s backlog remains solid with orders that will occupy the company till 3Q21.

Local revenues for 1Q21 were down 2.8% QoQ but up 6.2% YoY and amounted to EGP907 million. This came on the back of a drop of 2.0% QoQ but an increase of 4.3% YoY in the total local volume sold. Average selling price dropped by 0.8% QoQ but increased by 1.9% YoY to EGP83/sqm. Consumer demand showed a recovery in 1Q21 with a 3% YoY growth of showroom sales which accounted for 53% of total local sales. On the other hand, wholesale revenues increased by 12% YoY.

Record-high margins driven by lower COGS/Sales and lower raw materials prices secured in 4Q20

1Q21 gross profit came in at EGP481 million (flat QoQ but up 70.6% YoY), reflecting a +0.3pps QoQ and +5.0pps YoY increase in GPM to reach 17.4% which is the highest GPM in ORWE’s history. This came on the back of reduced COGS/Sales ratio to 83% in 1Q21 from 88% in 1Q20 due to 1) lower raw materials prices in the previous quarter (4Q20) which were reflected during this quarter, 2) lower marketing and travel expenses due to expeditions and meetings being virtual due to covid-19, 3) slow-moving inventory, which was previously impaired, was sold during this quarter, 4) tufted segment increased local sales contribution which usually has a higher margin than the export market.  

ORWE recorded an EBITDA margin of 17.7% (+0.4pps QoQ and +5.0pps YoY) with an EBITDA of EGP489 million (flat QoQ but up 70.1% YoY). This increase mirrored the increase in GPM as well as the drop of SG&A as a percentage of revenues by 1.2% YoY.

Attributable net profit amounted to EGP300 million ( down 26.6% QoQ but up 72.3% YoY) exceeding our expectations of EGP163 million. NPM recorded 10.8% (-3.6pps QoQ but +3.2pps YoY). Bottom line improvement could be traced back to the 1) increase in GPM due to lower polypropylene prices in 4Q20 and higher interest income on a higher cash balance. It is noteworthy that the sequential drop is due to the export rebates collected in 4Q20 which boosted the bottom-line during that quarter with other revenues amounting to EGP315 million.

Recovery in demand expected to continue in 2021

ORWE secured long-term contracts in several major markets that will help the company to expand its market share and develop new sales channels which will allow it to continue with the same solid revenue performance through 3Q21. ORWE is targeting to open eight new showrooms in Egypt in 2021. Concerning the hospitality sector, there are multiple projects for 2021 in the pipeline. Export rebates expected for 2021 are at least EGP150 million.

ORWE is currently trading at a FY21e P/E of 8.0x and EV/EBITDA of4.8x.

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