Rise in prices not enough to save top-line from drop in volumes
ALCN reported 1Q21/22 revenues of EGP538 million, compared to EGP674 million the previous quarter and EGP548 million in 1Q20/21, showing a drop both sequentially and annually of 20.2% and 1.9%, respectively. The drop in the number of containers handled was deeper than the slight rise in prices to prevent the decline in both aspects in the top-line. The number of containers handled came in at 181 thousand containers, declining by 14.4% QoQ and 10.3% YoY.
This decline could be partially attributed to the disruption in world trade and supply chains caused by the global energy crisis, leading to a rise in logistics and shipping costs. ALCN was able to raise prices a notch but not enough to push top-line forward. EGP denominated service fees reached EGP2,970/container, dropping sequentially by 6.7%, despite showing a rise of 9.5% YoY. USD denominated service fees followed by reaching USD189/container, dropping QoQ by 6.8% and rising annually by 10.6%.
Healthy levels of margins maintained; Supported by cost control
Gross profit for the quarter reached EGP340 million, compared to EGP453 million in 4Q20/21, a QoQ drop of 25% and compared to EGP323 million recorded in 1Q20/21, a rise of 5% YoY. Margins were able to maintain its healthy level of 63.2% in 1Q21/22, supported by a decline in COGS by 10.2% QoQ and 11.8% YoY, as a result of lower number of containers handled.
ALCN were able to drop their general & administrative expenses to reach EGP51 million, or 9.4% of sales, compared to EGP77 million and 11.4% of sales in 4Q20/21 and EGP56 million and 10.2% of sales in 1Q20/21. EBITDA scored EGP319 million, dropping by 21.5% QoQ, while rising by 7.8% YoY to reach an EBITDA margin of 59.3%.
Bottom line shows sequential rise but annual drop; NPM moves positively
Cost control strategies were not able to prevent the decline in bottom line, however, was able to push margins forward. ALCN recorded a bottom line of EGP336 million, compared to EGP398 million in 4Q20/21, a 15.5% drop QoQ, and compared to EGP278 million recorded in 1Q20/21, showing a climb of 21.1% YoY. Net profit margin was able to move positively on the sequential and annual aspect by reaching 62.5% in 1Q21/22, compared to 59.1% recorded in 4Q20/21 and 50.7% in 1Q20/21.
From one hit to the other; Maintain Equalweight
As world trade was deeply affected by the pandemic and was on its way to recovery, another hit was taken by the global energy crisis affecting logistics and trade movements. The effect could be witnessed in the drop in number of containers handled, despite the beginning of operation of the first phase of terminal deepening project. However, its effect could not be witnessed so far and according to management, it will not materialize until the effect of the pandemic is completely over, and by now, the effect of the global energy crisis as well. ALCN may face a fierce competition as new logistics companies share the port with them, which are expected to start operations by mid-2022. Number of containers handled might face a hit with limited changes to be added to the pricing policy. What might save ALCN from taking a strong hit is the end of phase two of terminal 96 deepening project, which is expected by May 2022 at a cost of EGP261 million for phase two only.
We maintain our Equalweight recommendation for ALCN with a FV of EGP9.00 and upside potential of 18.9% till any further updates.
ALCN is currently trading at FY21/22 P/E of 8.0x and a FY21/22 EV/EBITDA of 7.9x.