Earnings Report /
Egypt

Cairo Investment and Real Estate Development: 9M21/22 – Topline continues its green path; heightening expenses pressure profit

  • Revenues supported by tuition fees; Higher education revenues should revive after centralized enrollment cancellation

  • Operating and financing expenses pressure margins

  • Maintain overweight on expansion plans and rising tuition fees

Al Ahly Pharos Securities Brokerage
21 July 2022

Revenues supported by tuition fees across both segments; Higher education revenues should revive after centralised enrollment cancellation

CIRA recorded a topline for 3Q21/22 of EGP520 mn, higher YoY by 1.7% from the previously recorded EGP511 mn in 3Q20/21. Yet, below our expectations of EGP599 mn.For the 9M21/22 revenues reached EGP1,464 mn, climbing by 15.3% YoY, against EGP1,270 mn in the previous period. Topline growth came supported by both of the company’s segments growing by 15% YoY, driven by ongoing expansions.

Higher education segment recorded revenues of EGP839 mn in 9M21/2, up by 15.2% YoY. Growth was driven by 17.9% increase YoY in tuition revenues recording EGP805 mn, which was partially offset by a 25.2% YoY decline in other revenues during the same period. Tuition revenues accounted for 95.9% of total higher education revenues and growth came due to the ramp-up in student enrollment at the already existing faculties, as well as enrollment at the 3 newly launched faculties which started accepting applications at the beginning of the current academic year. Other revenues recorded EGP34 mn during the period, where its decline was driven by the decrease in admission fees by EGP10.7 mn compared to the previous academic year due to the new centralized admission system imposed during the year. However, it is worth mentioning that the centralized admission system is now canceled and will no longer be enforced for the next academic year, increasing the potential new enrollments for all private universities.

K-12 segment revenues came in at EGP 625 mn in 9M 2021/22, up by 15% YoY. Expansion in revenues was driven by a YoY increase in both tuition revenues and other revenues by 16.9% and 1.6%, respectively. Growth in tuition fees came on the back of the increased admission revenues driven by student enrollment in both the existing schools, as well as the 4 newly launched schools during the year.

Operating and financing expenses pressure margins

Gross profit for the group recorded EGP867 mn, a YoY rise of 6.6% from the previously recorded EGP814 mn in 9M20/21, lading to a margin of 59.2%, versus 64% in 9M20/21, a YoY drop of 4.8pps. The decline in margins came on the back of 31% YoY hike in operating costs, driven by increasing salaries and wages, maintenance, utilities, and other expenses related to the newly developed schools. Gross profit for 3Q21/22 recorded EGP311 mn, a decline of 10.4% YoY from the previously recorded EGP347 mn in 3Q20/21, leading to a margin of 59.8%, versus 67.9% in 3Q20/21 (-8.1pps YoY).

EBITDA for the period recorded EGP828 mn, compared to EGP734 mn in 9M20/21, a YoY rise of 12.8%, leading to a margin of 56.6%, versus 57.8% recorded in the previous period, a YoY drop in margins by 1.2pps. However, the decline in margins on the gross profit level was partially cushioned by the decrease in SG&A expenses by 4.8% YoY to record EGP149 mn, compared to EGP155 mn in 9M20/21, driven by the company’s efforts to optimize its cost base. EBITDA for 3Q21/22 recorded EGP294 mn, highly in line with our expectations of EGP301 mn, yet below 3Q20/21 of EGP322 mn by 8.8%, settling at a margin of 56.4%, versus 63% the previous period (-6.5pps YoY).

Net interest expenses increased remarkably by a full 72.2% YoY to record EGP138 mn, compared to only EGP80 mn in the previous period, on the back of increasing debt used to finance expansion plans across all segments. Net debt recorded EGP1,834 mn during the current period, a hike of 97.1% YoY from the previously recorded EGP930 mn in 9M20/21. Cash & Cash equivalents dropped heavily to record EGP163 mn, compared to EGP236 mn by 4Q21 and EGP447 mn in 3Q21 due to large cash outflows associated with new investments and expansion plans across both segments.

Heightened interest expenses pressured bottom line and NPM, recording EGP424 mn, a minor decline of 0.5% YoY, settling at a NPM of 28.9%, versus 33.5% in 9M20/21, a YoY decline of 4.6pps. Attributable net profit for 3Q21/22 recorded EGP140 mn, in line with our expectations of EGP153 mn, however, below 3Q20/21 of EGP196 mn by a full 28.3%. Reaching a margin of 27%, versus a previous 38.3% (-11.3pps YoY).

Maintain overweight on expansion plans and rising tuition fees

CIRA is currently facing cost pressures driven by inflation, as well as the costs of the newly established entities that haven’t yet started operation, thus not generating optimum revenue. However, to offset such pressure, the company is planning to hike licensed tuition fees, and in order to reduce such burden on students, financing options will be provided for tuition and other fees, as the company already partnered with valU to provide convenient payment plans and as a mean to attract new students, as heightened tuition and other fees deems to be a necessity for profitability.

Applications for the new Assiut university branch will begin by August with the launch of 6 faculties by the beginning of the coming academic year (September 2022). Moreover, construction for Cairo Saxony University will begin by September, with plans to launch the first phase by September 2023 with 4 cohorts.

A bright point for the upcoming academic year is the cancellation of the centralized higher education admission system that was imposed by the government last year, leaving the market with an expected pool of 700 thousand new high school graduates.

The company declared earlier that it embarked on a future flow securitization program. The program will see the company raising EGP2 bn to cover expansionary investment over the upcoming 3 years.

CIRA is currently trading an at FY23 P/E of 15.7x and an EV/EBITDA of 8.2x