Earnings Report /
Egypt

Qalaa Holdings: 3Q21 – despite revenue surge, losses are maintained; Maintain EW

  • Financial indicators surge YoY on weak base effect; Bottom-line remains in the red

  • ERC’s refining margins show signs of improvement

  • TAQA continues its streak of strong results

Al Ahly Pharos Securities Brokerage
5 December 2021

Financial indicators surge YoY on weak base effect; Bottom-line remains in the red

Qalaa Holdings reported 3Q21 consolidated financial results posting a net loss post minority of EGP441 million, versus 2Q21’s net loss of EGP402 million and 3Q20’s net loss of EGP444 million. 3Q21 revenue came in at EGP12,797 million (+26%QoQ, 46%YoY).

Gross profit came in at EGP1,615 million (+27%QoQ, +185%YoY) implying a GPM of 12.6%. while consolidated EBITDA hit EGP1,196 million (+63%QoQ, +586%YoY), implying a margin of 9.3%.

Consolidated debt stood at EGP63.1 billion of which EGP43.6 billion are related to ERC. As the company recorded an interest expense for the quarter of EGP1,152, versus 3Q20’s EGP879 million, with the increase owed to TAQA Arabia which utilized long-term loans to finance capex requirements at MasterGas and the Sixth of October substation, as well as other short-term loans to finance inventory.

ERC’s refining margins show signs of improvement  

The refinery recorded revenue of EGP8,098 million (+35% QoQ, +51% YoY), with sequential revenue growth driven by: 1) volume growth as volumes recovered to record 848k tons (-12%YoY, +18%QoQ) and 2) Price growth as recovery in oil markets during 3Q21 supported the expansion of Diesel-HFO spreads which averaged USD209/ton in 3Q21 (+13%QoQ, +77%YoY). Management reported that ERC’s gross refining margin recorded USD1.5 million per day, which is still significantly below pre-covid levels. ERC recorded a bottom-line loss of EGP418 million in 3Q21, versus 2Q21’s loss of EGP451 million and 3Q20’s loss of EGP810 million.

TAQA continues its streak of strong results

TAQA Arabia’s 3Q21 revenue came in at EGP2,403 million (+10% QoQ, +16% YoY). The strong YoY growth was backed by strong performance across all divisions.

TAQA’s gas arm recorded revenue of EGP507 million (+12% QoQ, +28% YoY). Despite a drop in total gas household connections for 3Q21 which came in at 33.5k connections, versus 38.4k in 2Q21 and 39.7k in 3Q20, TAQA managed to show strong YoY growth on the back of CNG station expansions (7 station in 3Q21, versus 1 station in 3Q20).

TAQA’s power arm recorded revenue of EGP518 million (+17%QoQ, +27%YoY), primarily driven by a 22% YoY increase in electricity generation. Additionally, the company’s performance in 3Q21 was supported by improving market conditions driving growth in TAQA Power’s number of industrial and household clients served by 20% y-o-y and 17% y-o-y, respectively, as of 30 September 2021.

TAQA’s fuel marketing arm recorded revenue of EGP1,386 (+7%QoQ, +9% YoY), which was backed by a 5% YoY hike in liquid fuels distributed.

Finally, TAQA Arabia reported 3Q21 net profit of EGP108 million (+18%QoQ, +22%YoY).

Cement prices reflect positively on ASEC’s topline

ASEC Holding 3Q21’s revenue came in at EGP984 million (+85%QoQ, +314%YoY) as the company saw an increase of average cement prices during the quarter and the quadruple YoY growth was primarily attributable to a weakened base effect owing to technical difficulties which were witnessed in 3Q20. The company reported a net loss of EGP219 million, versus 2Q21’s loss of EGP201 million, and 3Q20’s loss of EGP449 million

Further revenue growth is on the cards; Losses will continue; Maintain EW

We expect further topline expansion for 4Q21, 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 (QTD average at USD260/ton, versus USD209/ton in 3Q21) as the two factors would prompt further margin expansion. However, the burden of significant interest and depreciation expenses are expected to dampen those gains. Management continues to report that debt restructuring negotiations with senior lenders are taking place, with a solid breakthrough yet to materialize.