Equity Analysis /
Egypt

El Sewedy Electric: 2Q19 – Turnkey remains the main driver for growth

    Mark Adeeb
    Mai Ayoub
    Al Ahly Pharos Securities Brokerage
    26 August 2019

    Wires and cables weigh on topline

    El Sewedy Electric (SWDY) reported 2Q19 revenue of EGP10,330mn, up 2.1% y/y and down 8.0% q/q. The sequential decline was mainly driven by 16.4% decline in wires and cables sales in tandem with the sequential decline in global copper prices recording USD6,129/ton vs USD6,219/ton in 1Q19, while EGP strengthened to 17.01/USD against 17.6/USD in 1Q19. It is worth noting that the Turnkey segment and meters segment were the only segments that grew sequentially. The GPM improved to 17.0% vs 16.6% in 2Q18 and 16.1% in 1Q19 on the back of improving turnkey and transformers margins. Attributable net income came in at EGP931mn, down 4.2% y/y and 2.8% q/q. Bottom line declined on the back of lower interest income (EGP9mn vs EGP109mn in 2Q18 and EGP110mn in 1Q19) as treasury investments fell sequentially to EGP296mn vs EGP1,163mn.

    Wires & cables sales fell on declining volumes and prices

    Wires and cables revenues came in at EGP5,447mn, down 6.4% y/y and 16.4% q/q. The segment’s topline fell on the back of 1) 8.4% q/q decline in average revenue/ton in tandem with falling copper prices and strengthening EGP. Accordingly, GPM fell sequentially to 12.3% vs 14.0% and gross profit/ton declined to EGP16,522, down 4.4% y/y and 26.5% q/q.

    Book-to-bill ratio stood at 4.9x

    Turnkey 1Q19 revenue came in at EGP3,544mn, up 19.0% y/y and 10.7% q/q. The company’s backlog inched up to EGP66bn, which provides visibility for 59 months. If we exclude Tanzania’s award from the backlog, it would provide visibility for the coming 40 months.

    Reiterate OW; Turnkey to drive growth going forward 

    We reiterate our Overweight recommendation on an unchanged FV of EGP18.94/share. SWDY might miss our FY19 estimates for revenue of EGP48.5bn and attributable net income of EGP4,743mn. We factor in our assumptions a USD/EGP of 18.53; however, if we assume a USD/EGP of 16.50 in perpetuity the FV would fall to EGP14.43/share. SWDY is currently trading at FY19 P/E of 6.4x and EV/EBITDA of 4.9x.