Equity Analysis /
Egypt

Dice Sport & Casual Wear: Initiation of Coverage – Recovery is key; Equalweight on FV of EGP1.45

  • Financial performance to gradually recover during 2021e–2025f

  • Export rebates account for 80% of valuation

  • Cheaper than global peers; expensive for local market conditions

Al Ahly Pharos Securities Brokerage
8 September 2021

Recovery is key

We initiate coverage on DSCW with a FV of EGP1.45/share and an Equalweight recommendation, on an upside of 24.7%. DSCW is an integrated garments manufacturer and a renowned apparel retailer in Egypt that was founded in 1989. The company’s core operations are primarily shaped by exports, in which DSCW ranks the first exporter of knitted garments and eighth exporter of ready-made garments in the Egyptian market. This is followed by the retail segment, where both exports and retail segments are supported by DSCW’s knitting, dyeing, and printing business lines. DSCW has been expanding its operations organically and inorganically (through a series of acquisitions that started in 2015), owing to which the company currently operates 13 manufacturing facilities, besides 287 retail stores across 20 governorates.

Financial performance to gradually recover during 2021e-2025f

We project revenues to record EGP1,520 million in 2021e and grow at a 5-year CAGR of 8% (during 2020a - 25f), reaching EGP1,820 million in 2025f. Top-line growth would be primarily backed by recovery in volumes across exports, retail, dyeing, and printing segments. In addition, margins are expected to gradually recover over our forecast horizon, with GPM expanding from 18.9% in 2021e to 24.1% in 2025f, reflecting a 5-year gross profit CAGR of 21% (during 2020a - 25f). Margin expansion would be mostly underpinned by the anticipated rise in exports GPM (which was pressured by restructuring costs as well as the pandemic in 2020), followed by an increase in the GPM of the retail and printing segments. In turn, GPM improvement would pave the way for bottom-line to grow from EGP24 million in 2021e to EGP127 million in 2025f, where NPM would expand by 5.4pps during our forecast horizon to hit 7.0% in 2025f, noting that net profit recorded a loss of EGP55 million in 2020a due to the sharp drop in GPM.

Export rebates account for 80% of valuation

We expect DSCW’s export rebates (7.5% of export sales) to boost the company’s profitability levels and margins during 2021e – 25f. Based on our estimates of DSCW’s export revenues, we project export rebates to record EGP64 million in 2021e and grow to EGP74 million by 2025f, contributing an average of 42% to adjusted EBIT. This would result in adjusted EBIT more than doubling from EGP109 million in 2021e to EGP227 million in 2025f, where adjusted EBIT margin would expand from 7.2% in 2021e to 12.5% in 2025f. Given their significant impact on the company’s financial performance, export rebates represent EGP1.16/share (80%) of our valuation of EGP1.45/share.

Cheaper than global peers; expensive for local market conditions

Based on our estimates, DSCW is currently trading at 2021e P/E of 25.6x, which is at a slight discount to the global peer average in emerging markets of 27.5x, while trading at 2021e EV/EBITDA of 16.1x, slightly above the global peer average EV/EBITDA of 14.0x in emerging markets. DSCW is trading at 2022f P/E of 11.2x, which is at a discount to the global peer average in emerging markets of 20.4x, while trading at 2022f EV/EBITDA of 11.6x, slightly above the global peer average EV/EBITDA of 9.9x in emerging markets.