Revenues surge annually on the back of lab expansions and a weak base effect
SPMD reported 1H21 results. Top-line surged by 196% YoY to register EGP175 million. Labs retained the lion’s share with respect to revenue contribution, generating EGP167 million (95.4% of top-line) in 1H21, a jump of 211% YoY, out of which EGP29 million are Covid-related revenues. Polyclinic revenues recorded EGP8.1 million in 1H21, growing by 83.6% YoY and contributing 4.6% to SPMD’s top-line.
On a quarterly basis, top-line came in at EGP110 million in 2Q21, representing a growth of 67.8% QoQ and a surge of 223% YoY. Labs’ revenues recorded EGP104 million for the quarter, jumping by 67.1% QoQ and 223% YoY, which accounted for 95.2% of SPMD’s top-line in 2Q21, where Covid-related revenues recorded EGP23 million in 2Q21. Polyclinic revenues amounted to EGP5.3 million in 2Q21, depicting a growth of 83.9% QoQ and 227% YoY, which represent 4.8% of SPMD’s 2Q21 top-line. Polyclinic revenues for the quarter imply recovery to pre-Covid levels, noting that polyclinic revenues fell by 40% in April and May 2020 as a result of pandemic repercussions to record EGP1.6 million in 2Q20.
The annual surge witnessed in 2Q21 top-line primarily stems from SPMD’s expansion in the labs segment, accompanied by a weak base effect. SPMD operated 84 labs (labs that have been operational for more than six months) in 2Q21, out of its total network of 121 labs, up from 65 operational labs in 2Q20 (and up from 82 operational labs in 1Q21). In addition, 2Q20 was adversely impacted by the lockdowns and mobility restrictions imposed, leading to a weak base effect.
Healthy margins despite annual GPM contraction
GPM contracted by 1.0pps YoY in 1H21, registering 54.3%, with a gross profit of EGP95 million (+191% YoY). In 2Q21, GPM recorded 55.0%, up 1.9pps QoQ but down 3.1pps YoY. Accordingly, gross profit for the quarter came in at EGP60 million, climbing by 73.7% QoQ and 205% YoY. Management earlier highlighted that the GPM of labs is expected to drop in 2021 relative to the 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 as a result of pricing discounts received by corporates.
EBITDA margin recorded 47.9% in 1H21, a slight growth of 0.1pps YoY, with an EBITDA of EGP84 million (+197% YoY). On a quarterly basis, EBITDA margin expanded by 8.4pps QoQ and 1.0pps YoY to record 51.1% in 2Q21, reflecting an EBITDA of EGP56 million (+101% QoQ, +229% YoY). Expansion of EBITDA margin was supported by SPMD’s strong top-line growth in 2Q21 and 1H21, which outweighed the rise in SG&A expenses by 169% YoY in 2Q21 and 274% YoY in 1H21. SG&A/Sales stood at 9.7% in 1H21 (+2.0pps YoY), where it recorded 6.9% in 2Q21 (-1.4pps YoY, -7.5pps QoQ).
SPMD’s operations drive significant bottom-line growth, Prime Speed still pressured by border closure
Net profit came in at EGP108 million (+409% YoY) in 1H21, out of which EGP34 million were contributed by Prime Speed, with a NPM of 61.7% (+25.8pps YoY). On a quarterly basis, net profit registered EGP67 million in 2Q21 (+64.1% QoQ, +377% YoY), which translates to a NPM of of 61.2% (-1.4pps QoQ, +19.8pps YoY). SPMD’s operations generated net profit of EGP51 million in 2Q21, up from EGP23 million in 1Q21 and up from EGP13 million in 2Q20. Meanwhile, Prime Speed contributed EGP16 million to SPMD’s bottom-line in 2Q21, down from EGP18 million in 1Q21 but up from EGP1.2 million in 2Q20.
The drop in Prime Speed’s bottom-line in is primarily attributed to the cancellation of flights to Saudi Arabia, which resulted in lost revenues of EGP70 million for Prime Speed in 1H21, due to the travel certificates that have not been issued as a result. Yet, we expect Prime Speed to witness stronger performance in 2H21, given Saudi Arabia’s recent decision to open its borders for vaccinated non-residents, which would lead to the resumption of issuance of travel certificates.
SPMD signed a EGP965 million contract in July, under which Speed Labs would conduct pre-employment tests (in 120 facilities across 17 governorates) for around 1 million Egyptians heading to Libyan reconstruction projects until the end of 2022. The company highlighted that 30% of the deal should be completed during 2021 while the remaining would be completed during 2022, noting that this contract is subject to a NPM of c. 27%.
We expect this contract to raise our FV from EGP3.50/share to EGP3.68/share, translating to a valuation gap of 58.6% based on the current market price.
We expect SPMD’s revenues to rise from EGP426 million to EGP716 million in 2021. Accordingly, our net profit estimate would grow from EGP314 million to EGP393 million, implying a NPM of around 55%.
For 2022, we expect revenues to rise to EGP1,355 million, up from our previous estimate of EGP679 million. In turn, this would boost our net profit estimate from EGP181 million to EGP364 million, implying a NPM of around 27%.
It is noteworthy that our bottom-line estimates for SPMD prior to the EGP965 million deal are based on Prime Speed generating net income of EGP792 million in 2021, out of which EGP238 million would be SPMD’s share. For 2022, we assume Prime Speed’s net income would drop by 60% to record EGP317 million, out of which EGP95 million would be SPMD’s share.
Outlook remains positive for 2021; Maintain Overweight
SPMD plans to proceed with its aggressive expansion plans, targeting to end 2021 with 140 Speed Labs, which should support management’s target of conducting 10 million tests in 2021. In addition, the company plans to add a third polyclinic in Suez in 3Q21, noting that the growth rate of operational performance in the current two polyclinics is 50%. Regarding the hospitals segment, the first phase (65-bed capacity) of Speed Hospital is around 90% complete, and is expected to be inaugurated within two months. Moreover, management expects the acquisition of 50% of Al Safwa Hospital to be finalized within weeks, and plans to raise the hospital’s capacity from 67 to 150 beds, as mentioned before. On another note, SPMD is currently preparing the documents for the dual listing on Dubai Stock Exchange, and targets to finalize the listing during 4Q21. The company is currently studying the percentage of shares that will be listed on Dubai Stock Exchange.
SPMD is currently trading at 2021f P/E of 8.2x and EV/EBITDA of 17.3x.