Equity Analysis /
Egypt

IbnSina Pharma: 2Q19 – positive topline performance; healthy margin expansion

    Mohamed Hamza
    Al Ahly Pharos Securities Brokerage
    6 August 2019

    Topline enhancement across the board 

    ISPH reported 2Q19 revenues of EGP3,917million vs EGP3,149 million in 2Q18 (+24% YoY) and EGP3,811 million in 1Q19 (+3% QoQ). On an annual basis, 1H19 revenue recorded EGP7,728 million vs EGP6,107 million in 1H18 (+27% YoY). ISPH’s business segments recorded improved YoY performance, which resulted in market share increasing to 19.4% in 1H19 from 19.1% in 1H18; supported by 4% and 0.8% YoY increase in deliveries and clients, respectively.

    • Pharmacy sales (68.9% of total sales) increased by c26% YoY.
    • Wholesaler sales (13.8% of total sales) increased by c11% YoY. 
    • Tender sales (10.1% of total sales) increased by c39% YoY.
    • Hospitals sales (3.8% of total sales) increased by c109% YoY.
    • Personal care sales (3.0% of total sales) increased by c12% YoY.
    • Third-Party Logistics sales (0.4% of total sales) increased by c69% YoY.

    Lower cash sales & improved efficiencies drive margin expansion

    GPM expanded to 8.3% in 2Q19 vs 7.9% in 1Q19 and 8.1% in 2Q18. GPM improvement came on the back of lower cash-based ‘wholesale’ sales growth (+11% YoY) vs higher credit-based ‘tender’ sales growth (+32% YoY). As a result, ‘Wholesale’ Discounts/Gross Revenue dropped to 2.35% (-21 bps). 

    2Q19 EBITDA margin increased to 4.1% in 2Q19 from 3.8% in 2Q18 on account of higher operational efficiency levels via 1) revenue/site increasing by 31% YoY, 2) revenue/vehicle increasing by 23% YoY, 3) revenue/employee increasing by 19% YoY, 4) SG&A/Sales dropping to 4.2% in 2Q19 vs 4.3% in 2Q18. 

    Despite net interest expense balance increasing by 198% (EGP1,564 million in 1H19 vs EGP452 million in 1H18), ISPH recorded a higher NPM of 1.6% in 2Q19 vs 1.54% in 2Q18; sustained by management’s decision not to book additional provisions in 2Q19 vs EGP20 million in 2Q18.

    Adjusted FV to EGP11.9; Maintain Overweight

    ISPH’s 1H19 capex outlay closed at EGP174.0 million (EGP87 million in 2Q19) vs EGP121.9 million in 1HQ18 (+43% YoY), with 56% allocated to new distribution sites (adding 3 new distribution centers with a total of 62 sites), 21% to maintenance, 11% to new vehicles (adding 29 new vehicles from 1H18), 9% to technology, and 2% to new headquarters. 

    ISPH recently disbursed a cash dividend of EGP0.07/share as well as increased its issued and paid-in capital from EGP180.5 million to EGP205 million via a 0.14:1 bonus share, which increased shares outstanding from EGP722 million to EGP820 million.  Therefore, we adjust our FV from EGP13.5 to EGP11.9.

    ISPH is trading at an EV/EBITDA19 of 12.6x and P/E19 of 22.7x, which are above the market average of 8.8x and 15.2x, respectively. Nevertheless, ISPH is trading at a premium to peers essentially because it offers the best exposure to the pharma sector in Egypt, but without any FX risk.  ISPH outpaced 1H19 market sales growth by more than 2.9pps (26.8% vs 23.9%). With continuous market share gains as well as eventual revisions in med prices, the implementation of the Universal Healthcare System, Egypt’s per capita expenditure on pharmaceutical products which remains lower to regional peers, and increased demand (supported by population growth of 2% annually and industry-level volumes sold increasing by 11% YoY) , we  project ISPH to continue achieving notable topline growth. We maintain our Overweight recommendation.