High base effect casts an otherwise good quarter in a negative light
Sales in 2Q19 reached EGP3.8 billion, down 32.9% y/y and up 70.6% q/q. The EGP3.8 billion is higher than the company’s usual EGP2.0 billion in quarterly sales, but showcases an annual decline as a result of the 2Q18 launch of Badya which had boosted that quarter’s sales figures. The majority of 2Q19 sales were generated by Palm Hills Alexandria.
Revenue in 2Q19 declined 18.4% y/y and rose 62.5% q/q to EGP1.6 billion as a result of the 44.5% y/y drop and 10.2% q/q rise in 2Q19 unit deliveries and the aforementioned annual decline and sequential rise in 2Q19 sales, given that the land portion of standalone unit sales is immediately recognized at sale as revenue on the income statement. Gross profit followed suit with its 14.8% y/y decline and 83.0% q/q rise, but net profit rose both 43.8% y/y and 119.8% q/q due to a decrease in finance costs and costs of receivables securitization.
Margins increased annually and sequentially, with GPM reaching 41.8% and NPM reaching 19.9%.
Net debt increased from EGP2.2 billion at the end of 1Q19 to EGP2.6 billion at the end of 2Q19. Receivables increased from EGP17.4 billion at the end of 1Q19 to EGP18.1 billion at the end of 2Q19.
FY19 sales target poses a challenge
With 1H19 sales of EGP6.1 billion, down 22.5% y/y, Palm Hills Developments (PHDC) faces a challenging task to meet its FY19 sales target of EGP14.0 billion. Our EGP3.78/share valuation assumes FY19 sales of EGP8.5 billion.
We maintain our Overweight recommendation of PHDC based on our FV of EGP3.78/share.