Earnings Report /
Egypt

MM Group: Q4 19: Profitability surges on margin improvement despite weak revenue growth

  • Attributable net profits came in at EGP459.5mn, an increase of 69.4% yoy

  • Revenues of EGP9.83bn, an increase of 28.9% yoy

  • MTI is trading at attractive multiples; maintain Overweight

Al Ahly Pharos Securities Brokerage
27 February 2020

Muted sales growth

MTIE reported 4Q19 revenues of EGP2.1 billion, compared to revenues of EGP2.12 billon in 4Q18 and compared to revenues of EGP2.39 billion in 3Q19 (-1% YoY, -12% QoQ). The quarterly decline in sales can be mainly attributed to lower sales from Kanawat, mainly on the lack of new Samsung mobile models and utilizing funds for expanding in shops rather than purchase of inventory, which resulted in a drop of 20.7% YoY and 22.9% QoQ in consumer electronics revenues. 

Strong auto segment sales (which was driven by lifted customs tariffs on European products) showed a YoY surge of 1.9x and grew by 27.4% QoQ and managed to limit the impact of weak consumer and electronics revenue growth.

Consumer and Electronics segment continued to lead revenue contribution during 4Q19, despite relatively weaker contribution (-14.7 YoY, -8.4% QoQ), of 60.6% of total revenues. Auto Segment contributed 22.4% of total revenues, up from 7.5% in 4Q18 and 15.5% in 3Q19. Telecom and Tractor segments contribution remained almost flat at 16.6% and 0.4%, respectively. 

Margins significantly improve in 4Q19

MTIE recoded a growth of 73% YoY and 15% QoQ in gross profit, reaching EGP249 million and implying a GPM of 11.9% (+5.1pps YoY, +2.8pps QoQ); despite weaker sales. GPM improvement came mainly due to the high-margin skewed sales and the change in the sales mix in favor of higher margin businesses. 

Net attributable profits came at EGP102.4 million in 4Q19; a YoY surge of 1.7x and remained almost flat QoQ. NPM recorded 4.9% in 4Q19 (+3.1pps YoY, +0.5pps QoQ). Net attributable profit growth came mainly due to solid operational growth and margin improvement and despite an increase of 62.5% in sales and distribution expenses along with a surge of 1.24x in finance expenses.

Despite missing our 2019 consolidated revenue estimate and management guidance of EGP11.0 billion (mainly due to lower revenues from Kanawat). MTIE exceeded our estimates for consolidated GP and net attributable profit of EGP833 million and EGP380 million in 2019. Profitability improvement can be attributed to higher than estimated margins across all business lines, driven by the shift in sales mix.

Profitability surges on margin improvement 

Net attributable profit surged by 1.72x YoY and minimally declined by 1.2% QoQ, hitting EGP102.4 million in 4Q19, up from EGP37.6 million in 4Q18 and slightly down from EGP103.7 million in 3Q19. Net attributable profit margin stood at 4.9% in 4Q19, compared to 1.8% in 4Q18 and compared to 4.3% in 3Q19 (+3.1pps YoY, +0.5pps QoQ). Net profit picked up on margin improvement across all business segments, solid auto sales along with the witnessed contribution of investment income from Ebtikar. 

Despite projecting conservative margins for 2020, we believe that MTI would deliver healthy growth and unlock further upside post replicating MTI’s model to Kanawat and other positive developments from the NBFS arms.

MTI trading at attractive multiples; maintain Overweight

MTIE is currently trading at 2020 P/E of 12.7x, and EV/EBITDA of 9.5x. MTIE announced a capital increase through the distribution of 0.25 share for every original share, bringing issued and paid in capital to EGP479.5 million from EGP383.6 million.