Import restrictions pressure sales performance
MTIE reported 1Q22 revenues of EGP1.94 billion, compared to EGP2.51 billion in 1Q21 and compared to EGP1.93 billion in 4Q21 (-22.9% YoY, +0.8% QoQ). During 1Q22, sales growth was significantly impacted by import restrictions and supply chain challenges. During 1Q22, sales growth was negatively impacted by weak mobile segment performance (-23% YoY) along with a significant drop in auto sales to stand at EGP196 million (-67.7% YoY), contributing 10.1% of sales in 1Q22 (-2.8pps YoY).
Consumer and electronics consolidated sales recorded EGP1.48 billion in 1Q22 (-10.1% YoY, +7.9% QoQ). The decline is mainly attributed to mobile segment weak sales during 1Q22 on lack of enough inventory amid import restrictions. However, home appliances segment showed a healthy performance with revenues growing by 23% YoY, which can be attributed to the fact that all of the electronic appliances distributed by MTIE is either manufactured locally (Samsung TVs and Carrier air conditioning) or imported directly by Bocsh’s office in Egypt (exempted from import restrictions). Consumers GPM stood at 7.1% in 1Q22 (-1.0pps YoY, -1.4pps QoQ).
Kanawat, mirrored MTIE’s performance in 1Q22. Kanawat’s revenues recorded EGP420 million in 1Q22 (-35.9% YoY, -16.7% QoQ), and net profit recorded EGP1 million (-90.0% YoY, -75.0% QoQ).
Automotive sales recorded EGP196 million in 1Q22, compared to EGP230 million in 4Q21, and compared to EGP607 million in 1Q21 (-67.7% YoY, -14.8% QoQ), auto sales dropped on the back of import restrictions, capping MTIE’s volumes sold during the quarter to 89 cars (compared to 315 cars sold in 1Q21 on the introduction of new models back then. We expect weaker auto sales during 2Q22 if import restrictions were not eased. Auto segment GPM came in at 21.0% in 1Q22 (+0.9pps, +4.7pps QoQ), where the quarterly auto GPM expansion is driven by a weak base for auto sales and margins during the fourth quarter of the year.
Telecom sales recorded EGP258 million in 1Q22 (+4.2% YoY, -18.6% QoQ). Despite weak telecom revenues, telecom business segment GPM came in at 11.9% in 1Q22 (+1.8pps YoY, +1.9pps YoY).
Profitability hindered by weak sales performance and FX losses
Gross profit came in at EGP178 million in 1Q22 (-37.2% YoY, -5.3% QoQ), which implies a GPM of 9.2% (-2.1pps YoY, -0.6pps QoQ). GPM contraction came on the back of a decline in revenues along with the lower contribution of the auto segment (highest margin business line). During 1Q22, EBITDA came in at EGP93 million (-50.7% YoY, flat QoQ), implying a margin of 4.8% (-2.7pps YoY, flat QoQ), mirroring GPM performance.
Net attributable profit came in at EGP50.7 million in 1Q22 (-60.1% YoY, +27.4% QoQ), implying NPM of 2.6% (-2.4pps YoY, +0.5pps QoQ). During 1Q22, bottom line performance was held back by:
Weak revenue performance (-22.9% YoY, +0.8% QoQ),
GPM contraction (-2.1pps YoY, -0.6pps QoQ),
FX losses of EGP5.1 million in 1Q22, compared to FX gain of EGP0.48 million
Recognition of EGP2.5 million of losses from subsidiaries and associated companies, including Ebitkar and Basata on higher provisions in 1Q22, compared to a gain of EGP4.2 million in 1Q21.
Blurred outlook for 2022 on macro uncertainties; Downgrade FV to EGP5.00 per share
The recent macro developments and prioritizing necessities imports’, the devaluation of the local currency, and the expected longer time needed to get approvals for imports do lengthen the importation process and lead to supply shortages. This could be offset by higher prices that could accordingly translate to higher margins if the company managed to increase prices by more than the devaluation magnitude, but this will need some time, and is highly reliant on local economic conditions and consumer adaptation.
We downgraded our FV of MTIE to EGP5.00 per share, down from EGP9.18 per share, mainly on the back of:
bringing down our 2022 assumptions on the back of import restrictions and supply chain challenges and rolling over the assumptions,
and revising downward our relative valuation for Ebtikar in light of global peer multiples.
MTIE is currently trading at 2022 P/E of 13.1x and EV/EBITDA of 9.8x.