Earnings Report /
Egypt

Domty: FY21 – Recovering sequential performance with a rise in sales

  • Price increase and new bakery line boosts top-line

  • Healthy revenues trickle down to bottom-line; Rising expenses prevents full reflection

  • Price increases are inevitable to protect performance; Maintain Overweight

Marina William
Al Ahly Pharos Securities Brokerage
3 April 2022

Price increase and new bakery line boosts top-line

DOMT recorded revenues of EGP1,087 mn for 4Q21, up 13.7% QoQ and 33.3% YoY. This rise was mainly price-supported, which was made possible by the phasing out of agents. The cheese segment acted as the major contributor to top-line with EGP725 mn, translating into 66.7% of total sales and growing by 11.7% QoQ and 25.9% YoY. While the bakery segment witnessed the highest growth across the three segments to reach EGP258 mn, a QoQ rise of 25% and 67.7% YoY.

Full-year revenues reached EGP3,361 mn, higher YoY by 12.2% YoY. This rise came supported by a rise in both the cheese and bakery segment, however, hindered by a drop in juice segment performance. Cheese segment sales rose by 8.8% YoY by a rise in all its subsegments. Bakery segment FY21 sales climbed to EGP727 mn with a YoY rise of 35.4%, supported by the new bakery line installed in May 2021 rising the daily capacity from 700 packs to 1000 packs.

Healthy revenues trickle down to bottom-line; Rising expenses prevent full reflection

Gross profit for the quarter recorded EGP257 mn, rising by 15.5% QoQ and 25.4% YoY, mainly supported by a recovery in revenues, leading to a GPM of 23.7% (+0.4pps QoQ, -1.5pps YoY). FY21 gross profit reached EGP753 mn, higher YoY by 2.3%. However, the sharp rise in costs from the rise in all raw materials as well as packaging prevented the full reflection of the top-line rise in the gross profit level. Management was able to prevent a further rise in costs by replacing their cartoon pack supplier, saving them EGP26 mn compared to 2021. GPM recorded 22.4% for FY21 (-2.2pps YoY).

SG&A as a percentage of revenues increased by 0.5pps QoQ and 1.3pps YoY to reach 17.1%. The minor increases allowed EBITDA for the quarter to reach EGP95 mn, a 10.3% rise QoQ and 1.8% rise YoY. EBITDA margin, however, came at 8.8% a 0.3pps drop QoQ and 2.7pps drop YoY. SG&A/Sales for the full year rose by a 2.0 pps YoY, backed by the new bakery line expenses from an increase in wages and distribution expenses. EBITDA recorded EGP212 mn for the year, a YoY decline of 30.7%, leading to an EBITDA margin of 6.3%, compared to 10.2% the previous year (-3.9pps YoY).

Quarterly interest expenses dropped by 9.5% QoQ and 3.6% YoY supported by a decline in effective interest rates by 0.1pps QoQ and 2.4pps YoY, rather than debt levels. Debt levels were brought down by 10.9% QoQ, however remained higher YoY by a full 31.5%.

Net profit for 4Q21 came in at EGP55 mn (+5.2% QoQ, +3.9% YoY) backed by trickling down of healthy top-line, leading to a NPM for the quarter of 5.1% (-0.4pps QoQ, -1.4pps YoY). Net profit for FY21 reached EGP72 mn (-54.2% YoY), higher than our expectations of EGP64 mn. The decline in the full-year bottom-line came as a result of increase in raw materials costs backed by the global commodities rally and SG&A expenses of the new bakery line, reflecting to an NPM of 2.2% (-3.1pps YoY).

Price increases are inevitable to protect performance; Maintain Overweight

As commodity prices continue their rally and due to the latest devaluation and inflationary pressures, DOMT management intends to keep raising their prices gradually to maintain gross margin at 22-23%. However, if the rally was prolonged and the price hikes were not absorbed, volumes may witness an initial slump, especially for the products with more elastic demand like juice, leading the company to utilize their production lines further towards milk (juice and milk are produced by the same lines). The new products planned to be introduced in 2022 (flavored milk, cooking cream, and whipping cream) would help the company reach their targeted gross margins as they are of higher prices and margins than plain milk. The company is also planning to add two new bakery lines, which will be financed through a long-term loan, and with the most recent interest rate rise and the further hikes expected throughout 2022, bottom line may be furtherly pressured by a rise in interest expenses as well as inflationary pressures caused by the recent devaluation.

With the phasing out of agents, price hikes are now easier. SG&A percentage to revenues is expected to maintain their levels of 17.1% as of 4Q21, as well as the decline in receivables DoH, bringing the company’s cash conversion cycles to a healthier level. Receivables DoH for 4Q21 came in at 71 days, compared to 95 days in 4Q20.

BoD suggested that all earning are to be retained with no dividend distribution.

DOMT is currently trading at FY22 P/E of 5.9x and EV/EBITDA of 5.9.