Earnings Report /
Egypt

Qalaa Holdings: 2Q21 – A gradual improvement

  • Topline recovers from 1Q slump, margins improve, losses narrow

  • ERC shakes off 1Q’s difficulties

  • TAQA continues to deliver strong results

Al Ahly Pharos Securities Brokerage
12 September 2021

Topline recovers from 1Q slump, Margins improve, Losses narrow

Qalaa Holdings reported 2Q21 results, recording net loss post minority at EGP402 million vs net loss of EGP479 million in 1Q21 and EGP712 million in 2Q20. Revenue hit EGP10,178 million (+27% QoQ, +37% YoY). The expansion in topline was supported by the resumption of production at ERC after the facility had been hit with operational difficulties and production stoppage in 1Q21 alongside strong performance from its other energy arm, TAQA Arabia.

2Q21 Gross profit came at EGP1,271 million (+128% QoQ, +75% YoY), implying a GPM of 12.5%.

EBITDA settled at EGP733 million, implying a margin of 7.2%, with the weak figure reflecting the effect of the 29-day stoppage which drastically weighed down on profitability.

2Q21’s interest expense amounted to EGP910 million vs 1Q21’s EGP851 million and 2Q20’s EGP1,032 million.

Consolidated debt stood at EGP61,311 million of which EGP42,941 million related to ERC vs the consolidated debt of EGP59,322 million of which 43,053 million related to ERC in 1Q21.

ERC shakes off 1Q’s difficulties

Despite a 22-day production stoppage, the refinery recorded revenue of EGP6,014 million (+46% QoQ, +52% YoY), with sequential revenue growth driven by: 1) volume growth as volumes recovered to record 717k tons vs 1Q21’s 607k tons and 2) Price growth as recovery in oil markets supported the expansion of Diesel-HFO spreads which averaged USD185/ton. Management also reported that ERC’s gross refining margin recorded USD1.5 million per day, which is still significantly below pre-covid levels.

TAQA continues to deliver strong results

TAQA Arabia’s 2Q21 revenue came in at EGP2,185 million (+7% QoQ, +27% YoY). The strong YoY growth was backed by strong performance across all divisions as its gas arm recorded revenue of EGP452 million (+7% QoQ, +25% YoY), driven by: 1) total gas household connections grew to hit 38k connections vs 33k in 2Q20, 2) Total gas distributed grew to 1.9 bcm vs 2Q20’s 1.6bcm, and 3) CNG stations increasing to 23 from 10 in 2Q20, and 4) Increasing its cumulative industrial clients to 280 from 251 in 2Q20.

TAQA’s power arm recorded revenue of EGP443 million (+25% QoQ, +47% YoY) driven by 48% YoY increase in electricity generation.

TAQA’s fuel marketing arm recorded revenue of EGP1,301 (+1.3% QoQ, +23% YoY), which was backed by a 20% YoY hike in fuels distributed.

Further growth is on the cards; Maintain EW

We expect further topline expansion for 3Q21 alongside narrowing losses, which would be primarily driven by ERC as the refinery resumes full capacity utilization in tandem with the continued recovery in oil prices which entails healthier Diesel-HFO spreads as the two factors would prompt further margin expansion. However, the burden of significant interest and depreciation expenses are expected to wipe out those gains. Management continues to report that debt restructuring negotiations with senior lenders are taking place, with a solid breakthrough still yet to materialize.