EFIC: 1Q21| Volume recovery drives annual growth; Margin pressure appears sequentially

  • Volume recovery drives annual surge in revenues; Revenue stabilizes sequentially
  • Rising expenses and costs pressured margins
  • Maintain Overweight on earnings recovery relative to last year's

Volume recovery drives annual surge in revenues; Revenue stabilizes sequentially

EFIC recorded revenues of EGP472 million in 1Q21, that came completely unchanged on a sequential basis, while rising sharply by 150% YoY, from the recorded revenues of EGP189 million in 1Q20.

The growth in revenue is mainly backed by Granulated Single Super Phosphate (GSSP) sales, where it reached EGP303 million in 1Q21, rising YoY by 792.1% and QoQ by 73.9%. The Powdered Single Super Phosphate (PSSP) sales came in at EGP76 million, recording a YoY rise of 44.1% but dropping QoQ by 61%. Sulfuric acid sales were unfortunate on both the annual and sequential basis, recording EGP21 million, with a YoY drop of 9.3% and QoQ drop of 61.4%. Ammonium Sulphate followed the same path as sulfuric acid, recording EGP46 million in 1Q21, a YoY drop of 26.1% and QoQ drop of 32%. DCP sales recorded EGP5 million, after zero sales in both 1Q20 and 4Q20.

Rising expenses and costs pressured margins

Gross profit came in at EGP133 million for the quarter, rising remarkably by 77.5% YoY from EGP75 million in 1Q20, while dropping on the sequential basis by -26.2% from EGP180 million recorded in 4Q20. Gross profit margin was pressured by remarkably higher COGS during 1Q21, hitting 28.2%, compared to 39.8% in 1Q20 and 38.3% in 4Q20. The key reason for such rise is sulphur prices which rose in 1Q21 by 72%, compared to 4Q20 average. QTD, the average for sulphur recorded USD200/ton.

SG&A reached EGP60 million in 1Q21 rising both annually and sequentially, where it recorded EGP38 million in 1Q20 (+56.5% YoY), and EGP33 million in 4Q20 (+81.7% QoQ). SG&A/Sales hit 12.7% for the quarter, compared to 20.3% in 1Q20, declining by 7.6pps YoY, and compared to 7% in the previous quarter, a rise of 5.7pps QoQ.

EBITDA was able to rise positively YoY by 75.4% to reach EGP66 million, from the previous EGP38 million. But the sequential drop remained present where it dived by 62% QoQ from the EGP174 million recorded in 4Q20. While EBITDA margin did the complete opposite by hitting 14.1% in 1Q20, dropping YoY by 6pps and rising QoQ by 38pps.

Bottomline rises annually, lags sequentially

Bottom-line came in at EGP40 million, significantly up from the recorded EGP3 million last year, while dropping sequentially by 10.2% from EGP44 million recorded in 4Q20. NPM stabilized at 8.4%, a YoY rise of 6.6pps and QoQ drop of 1pps.

Maintain Overweight on earnings recovery relative to last year's

We maintain our overweight recommendation for EFIC with a FV of EGP14.65/Share, representing a 17.2% upside potential from the current market price of EGP12.50/share. It is worth to mention that the fourth quarter is the strongest quarter while the first is the weakest due to seasonality. EFIC is currently trading at a 2021f P/E of 6.5x and 2021f EV/EBITDA of 5.2x.

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