Lab reported slightly below our estimates in terms of profitability, as extraordinary expenses related to the relocation to its new industrial complex affected the result
However, the start-up of its PC plant, and eventually the OTC plant as well, would result in improved profitability going forward, supporting a favorable outlook for the company's operations
Latam was the main growth driver for the quarter. Genomma Lab's total sales grew 6.4% y/y to MXN 3.548 billion, reflecting a solid 9.1% y/y growth in Personal Care (Mexico: +21.9%; Latam: -1.8%; US: +25.4%), which offset a lower 3.8% y/y advance in OTC (Mexico: -7.8%; Latam: 31.4%; US: -26.5%). The latter was the result of a difficult comparative base, due to preventive buying of drugs at the beginning of the pandemic a year ago. Once again, the main driver of growth was the launch of new products, offsetting an unusual drop in the sale of anti-flu products and an adverse FX effect. By region, Latam grew 11.6% ̶ with double-digit gains in Chile, Colombia, and Peru ̶ , followed by Mexico, which rose 4.2% y/y, neutralizing a 6.7% decline in the United States. Meanwhile, an extraordinary MXN 63 million expense, associated with the logistics relocation of its operations in Mexico and Brazil, limited profitability expansion to just 10 bps, placing the EBITDA margin at 20.5% (Mexico: -320 bps; Latam: +390 bps; US: -570 bps), thanks to an efficient expense control and higher operating leverage. As a result, EBITDA totaled MXN 726 million (+6.9% y/y). Finally, net income was MXN 319 million, down 14.5% y/y due to a 74% higher CFC, mainly attributable to lower FX gains.
Valuation is attractive. Lab trading at 8.2x FV/EBITDA 2021E implies a 16% discount vs. the 1Y average, which represents an attractive entry point, as it does not appear to reflect the company's favorable outlook, in our opinion.