MM Group: Healthy performance driven by favorable revenue mix

  • Consumer electronics and auto segments support revenue growth amid weak telecom revenues
  • Solid margin performance on a favorable revenue mix
  • Expect healthy performance in 2021

Consumer electronics and auto segments support revenue growth amid weak telecom revenues

MTIE reported 1Q2021 revenues of EGP2.51 billion, compared with EGP2.23 billion in 1Q20 and compared to EGP2.13 billion in 4Q20 (12.7% YoY, 18.1% QoQ), and slightly higher than our estimates of EGP2.40 billion. During 1Q21, sales performance is driven by consumer electronics sales (14.7% YoY, 7.8% QoQ), and auto segment sales (33.5% YoY, 101.4% QoQ), offsetting weak telecom sales (-25.2% YoY, -15.7% QoQ).

Consumer and electronics consolidated sales recorded EGP1.65 billion in 1Q21 (14.7% YoY, 7.8% QoQ), where the increase is primarily driven by strong Samsung mobile sales on new model launches along with home appliances healthy performance. This is well attributed to a weak base effect in 1Q20, which witnessed the delay of new launches, supply shortages along with factories closures. Mobile revenues contributed to 71% of consolidated consumer and electronics revenues and grew by 4% YoY, while home appliances contributed 29% to consolidated consumer and electronics revenues and recorded a significant growth of 41% YoY. Consumer and Electronics sales contributed 65.5% of total revenues (+1.1pps YoY, -6.3pps QoQ).

Kanawat, continued to show strong performance in 1Q21, after a pressured performance during 9M20 on delayed introduction of new mobile models and preparation for expanding in shops to replicate MTIE’s business model to form an organized chain of retail outlets to secure higher margins that reflect positively on bottom-line performance. Kanawat’s recently added TV brand Syinix and AC brand Daikin have been reporting solid revenue progression and managed to support margins. Kanawat recorded revenues of EGP655 million in 1Q21 (+62% YoY, +13% QoQ) and net profit surged by 3.11x YoY during 1Q21, recording EGP10 million. We believe that Kanawat’s performance is expected to gradually recover throughout 2021, given the completion of shop expansion, Samsung and Nokia new model introduction; that should collectively increase sales and support recovery.

Automotive sales recorded an impressive EGP607 million in 1Q21 (+33.5% YoY, +101.4% QoQ), auto segment performance is primarily attributed higher ASP (+20% YoY), volumes growth (+6.4% YoY), and strong appetite on the Group’s car models after lifting customs, this as well boosted by the introduction of new car models that usually takes place in 4Q20. MTIE sold around 315 cars in 1Q21, slightly up from 296 cars in 1Q20 and significantly up from around 167 cars in 4Q20. Auto sales contributed 24.1% of total revenues (+3.8pps YoY, +10.0pps QoQ).

Telecom sales recorded EGP247 million in 1Q21 (-25.2% YoY, -15.7% QoQ). Telecom sales’ decline is primarily attributed lower scratch card sales, driven by the shifting to e-payment platform credit top-ups from traditional scratch cards that should take time to normalize. Telecom sales contributed 9.8% of total revenues (-5.0pps YoY, -4.0pps QoQ).

Solid margin performance on a favorable revenue mix

Gross profit came in at EGP283 million, compared to EGP251 million in 1Q20 and compared to EGP204 million in 4Q20 (+12.9% YoY, +38.7% QoQ), this implies a GPM of 11.3% (flat YoY, +1.7pps QoQ). Gross profit margin performance is mainly due to higher contribution (+3.8pps YoY, +10pps QoQ, standing at 24.1% of consolidated revenues) of auto sales (high margin c.21.7%), which impacted the blended GPM positively. This was driven as well by a 0.6pps margin expansion in the consumer and electronics business segment, which was driven by a higher contribution of home appliances revenues (higher margin) to total consumer electronics revenues, amid weak Huawei mobile sales during the quarter. EBITDA came in at EGP189 million in 1Q21, compared to EGP163 million in 1Q20 and compared to EGP111 million in 4Q20 (+15.9% YoY, +70.2% QoQ).

Net attributable profit came in at EGP127.3 million in 1Q21 (+20.2% YoY, +82.6% QoQ), implying NPM of 5.06% (+0.3pps YoY, +1.8pps QoQ). During 1Q21, net attributable profit came higher than our estimates of EGP110 million, where bottom-line performance is driven by strong auto sales and home appliances segments performance, leading to margin expansion, the recognition of EGP4.24 million gain from subsidiaries (out of which EGP1.40 million coming from Ebtikar and EGP2.56 million coming from Basata), compared to recognizing a loss of EGP1.4 million related to subsidiaries in 1Q20, along with a spike in credit interest standing at EGP4.14 million in 1Q21, compared to EGP0.8 million in 1Q20.

Expect healthy performance in 2021

Samsung and Nokia’s new models introduction started to bear fruit in 4Q20 and continued throughout 1Q21, allowing Kanawat sales to sequentially recover, following the previous hits in 9M20. Despite weak performance in 2020 on the back of local and global challenges, we believe that signs of recovery in the consumer electronics segment, the introduction of new models, adding new home appliances to the company’s distribution network, replicating MTIE’s model in Kanawat, that is in addition to the positive developments in Ebtikar (with Vitas to breakeven towards the end of 2Q21), along with a rebound in auto sales could lead to a better operational and financial performance in 2021.

Management Outlook for 2021

  • MTIE has started 2021 with a healthy performance, where the company has introduced a new Samsung model and started delivering 2021 car models.

  • The consumer electronics revenues showed solid performance YTD, driven by Samsung mobiles and home appliances revenues. Kanawat continued to show sequential financial performance recovery.

  • MTIE is on track to achieve its 2021 auto volumes target of 1,100 cars.

  • Management is expecting a 15-20% revenue growth in Kanwat during 2021, where the recently added TV and AC brands are expected to show a higher contribution to revenues.

MTIE is currently trading at 2021 P/E of 15.8x and EV/EBITDA of 12.7x

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