Equity Analysis /

EFIC: H1 19 chairman meeting highlights

    Myss Semeida
    Al Ahly Pharos Securities Brokerage
    29 August 2019

    H1 19 Operational Highlights

    EFIC’s consolidated results for 1H19 include exports of USD24 million from Suez Company for Fertilizers Production (SCFP), and exports of USD14 million from EFIC.

    The company majorly benefited from the high demand season in the export market during the first half of 2019. The second half of the year should see high demand in the local market, which peaks with the onset of winter.

    Management confirm that all of EFIC’s plants are operating at utilization rates of 100%.

    EFIC’s 8-month 2019 exports of Granular Single Super Phosphate (GSSP) amounted to 207,000 tons at SCFP, and 128,000 tons from EFIC. 1H19 GSSP exports stood at 115,000 tons at SCFP, and 91,000 tons at EFIC.

    Local Vs. Export Market Dynamics

    Local prices for phosphate fertilizers were pressured last year mainly by farmers’ weak purchasing power, which led them to resort to underground players.

    Export prices for GSSP are mainly driven by soy bean prices in the Latin American export market; the recent increase in soy bean prices drove demand for GSSP, resulting in higher export prices.

    Local Market Competition

    The recently inaugurated phosphate-based fertilizer complex in Ain Sokhna, belonging to El-Nasr Company for Intermediate Chemicals (NCIC), mainly produces Triple Super Phosphate (TSP), Di-Ammonium Phosphate (DAP), phosphoric acid, and sulfuric acid. 

    With a different range of products than EFIC, NCIC’s fertilizer complex poses almost no competition to EFIC except when concerning sales of sulfuric acid in the local market.

    To address potential competition over sulfuric acid sales, EFIC has entered into commission-based agreements to produce sulfuric acid for third parties who import sulfur as a raw material.

    New Projects

    EFIC’s Ain Sokhna plant is expected to start operations beginning of 2020. The new plant has a GSSP capacity of 250,000 tpa aimed for exports, and is set up on a 256,000 sqm land plot.

    The company is studying adding a new production line for Potassium Sulfate. The capex required for the potassium unit is around EGP200 million, and the unit will have a capacity of 30,000 tpa.

    EFIC is also conducting a study to produce phosphoric acid from hydrochloric acid, which will be used for mixing with phosphate rock to obtain the required grade for GSSP export production.

    Export-driven growth to sustain; EFIC trading at cheap multiples

    EFIC’s estimates for 8-month GSSP exports indicate that 3Q19 will be another strong quarter for the company. We also expect local market sales to pick up starting 3Q and peak in 4Q on the back of seasonality. Overall, we expect the company to maintain its strong volume growth over 2H19.

    Despite the recent rally in EFIC’s stock price, we still believe the company looks attractive at its current market price. The stock is now trading at a 2019e PE of 5.0x, and EV/EBITDA of 4.0x; a significant discount its historical average PE of 13.7x, and EV/EBITDA of 10.2x