Earnings Report /
Egypt

Juhayna: 3Q22 – Revenues continue to rise while costs take a toll on margins

  • Yogurt sales drop sequentially while the rest continue to rise; Solid market shares maintained

  • Heightened costs taking a toll on margins; provisions pressuring bottom-line further

  • Commodities cool-down and removal of import restrictions to support margins; Maintain Overweight

Al Ahly Pharos Securities Brokerage
17 November 2022

Yogurt sales drop sequentially while the rest continue to rise; Solid market shares maintained

JUFO continued to break records at the top-line level, achieving revenue for 3Q22 of EGP2,996 mn compared to EGP2,435 mn in 3Q21 and EGP2,761 mn in 2Q22 (+23% YoY, +8.5% QoQ). 9M22 revenues came in at EGP8,161 mn compared to EGP6,254 mn recorded in 9M21, a climb of 25.1% YoY. The YoY rise came backed by healthy volume increases in the dairy and juice sectors, along with price increases applied across core segment, which total to an average of 20% YoY applied gradually throughout 9M22

The rise came backed by nearly all sectors combined. The dairy segment contributed to sequential revenues by 53.2%, coming it at EGP1,593 mn, compared to EGP1,188 mn achieved in 3Q21 and EGP1,284 mn in 2Q22 (+34.2% YoY, +24.1% QoQ), while the 9M22 dairy revenues recorded EGP4,175 mn, with a rise of 33.9% YoY and a contribution to sales of 51%. JUFO were able to raise their market share for the plain milk by 5% YoY to reach 63%, while their flavored milk market share dropped by 1% YoY to settle at 56%.

Yogurt segment achieved revenues of EGP668 mn compared to EGP610 mn in 3Q21 and EGP873 mn in 2Q22 (+9.6% YoY, -23.5% QoQ). 9M22 yogurt sales recorded EGP2,127 mn, compared to EGP1,841 mn in 9M21, reflecting a rise of 15.6% YoY. The company’s market share for the spoonable yogurt jumped by 1% YoY to settle at 31%, while the drinkable yogurt market share maintained its previous level of 50% with no YoY changes.

The juice segment recorded solid increases in revenues by 12.4% YoY and 24.5% QoQ to settle at EGP575 mn. The segment’s 9M22 revenues rose by 17.1% YoY to reach EGP1,419 mn during the period compared to a previous EGP1,212 mn in 9M21. The juice market share climbed by 1% YoY as well to reach 26%.

The concentrates segment’s revenues climbed by 91.3% YoY and 39% QoQ to reach EGP114 mn for 3Q22 and climbed by 51.7% YoY during the 9M22 period to record EGP261 mn, while the distribution segment revenues for 3Q22 dropped by 32.2% YoY and 24.3% QoQ to reach EGP45 mn. 9M22 distribution sales dropped by 1.9% YoY to hit EGP179 mn.

Heightened costs taking a toll on margins; provisions pressuring bottom-line further

3Q22 gross profit recorded EGP681 mn, a rise of 2.9% YoY and a drop of 11.9% QoQ, reflecting a margin of 22.7%, versus 27.2% in 3Q21 and 28.0% in 2Q22. The drop was driven by the full magnitude of high-priced raw materials reflecting fully during the quarter. 9M22 gross profit climbed 9.0% YoY to reach EGP2,095 mn, leading to a GPM of 25.7%, versus a previous 29.5% in 9M21 (-3.8pps YoY). The squeeze in margin came backed by the hike in prices witnessed by global commodities, packaging materials, the global supply chain disruptions, and the devaluation of the EGP, with the hikes in JUFO’s selling prices that were done gradually and further towards the end of the period not enough to offset the spiking costs.

EBITDA for the quarter recorded EGP312 mn compared to EGP357 mn in 3Q21 and EGP341 mn in 2Q22 (-12.6% YoY, -8.6% QoQ). The drop came as a trickling down of weaker gross profitability, pressured by heightened costs and despite SG&A/revenues dropping to 14.3% from a previous 16.5% in 3Q21 and 19.0% in 2Q22, leading to a margin of 10.4% for the quarter, versus 14.7% in 3Q21 and 12.4% in 2Q22. 9M22 EBITDA reached EGP923 mn, a drop of 5.0% YoY, with a margin of 11.3% versus 14.9% in 9M21 (-3.6pps YoY).

Bottom-line was furtherly pressured by the incline in provisions for the quarter which recorded EGP27 mn compared to EGP0.2 mn in 3Q21, as well as heightened net finance expense by 21% YoY and 65.2% QoQ to reach EGP19 mn, backed by higher interest expense and FX losses, leading to an attributable net profit of EGP155 mn compared to EGP173 mn in 3Q21 and EGP174 mn in 2Q22 (-10.6% YoY, -11.2% QoQ), reflecting a NPM of 5.2%, versus 7.1% in 3Q21 and 6.3% in 2Q22 (-1.9pps YoY, -1.1pps QoQ).

JUFO reached a net debt position of EGP508 mn for 3Q22 end, higher than 3Q21 end of EGP234 mn but below 2Q22 end of EGP512 mn. That position is expected to heighten for 4Q22 as the dividends payment for the year 2021 of EGP329 mn took place during November 2022.

Commodities cool-down and removal of import restrictions to support margins; Maintain Overweight

JUFO continue to show resilience when it comes to sales and market positioning; however, rising costs and expenses took a clear toll on margins and profitability during the quarter. The cooling-down of global commodities is expected to ease the pressure on margins along with the expected price increase to offset the devaluation effect. We expect JUFO to revert back to historical margin levels as import restriction is removed, easing the pressure of raw and packaging materials shortages, and as consumers start to slowly adapt to the price increases across the market.

JUFO is currently trading at a FY23 P/E of 9.5x and an EV/EBITDA of 4.6x.