Maintaining steady state
ATLC 3Q21 net income recorded EGP21 million (-5% q/q, +9% y/y), bringing 9M21 net income to EGP117 million (+112% y/y). The significant sequential decline took place due to the booked provisions of EGP1.7 million compared to reversals of EGP3 milion in 2Q21. On the other hand, the annual improvement was mainly supported by top-line growth of 15% recording EG51 million in 3Q21, coupled with 17% growth in net fees and lower provisioning (-11% y/y). However, the bottom line was eaten up by higher OPEX, mainly driven by admin expenses and depreciation of fixed assets.
3Q21 key takeaways were:
Post the securitization, new lease contracts amounted to EGP282 million, bringing the outstanding lease portfolio to EGP3.6 billion as of September 2021 (+8% q/q, -5% y/y). This implies healthy growth of the leasing portfolio. It is also worth mentioning that the company invested EGP45 million in short-term treasury bills to support its margins.
NIM stood at 7.8% in 3Q21, where revenue generated from leasing and factoring activities was stronger sequentially and annually supported by both leasing and factoring activities (+11% q/q, +9% y/y). The sequential and annual expansion in interest income recorded EGP141 million (10% q/q, +7% y/y) along with EGP2.5 million recorded as revenue from factoring activities (412% q/q). Accordingly, net interest income expanded on a sequential and annual basis by 8% and 15%, respectively despite the slightly lower NIM, supported by the strong growth in the leasing and factoring portfolios.
Fees income stood at EGP1.9 million, implying a 26% and 20% sequential and annual increase, respectively.
OPEX increased by 2% sequentially, and expanded by 27% annually on the back of higher selling and admin expenses which recorded EGP19 million in 3Q21 (+3% q/q, +22% y/y). The annual increase is much larger than the sequential increase due to the higher depreciation expense on annual basis, which recorded EGP2 million in 3Q21 (+1% q/q, +106% y/y).
Looking at the total expenses, it witnessed a 29% q/q growth and a 23% y/y growth. The sequential growth is higher due to the booked provisions amounting to EGP1.7 million compared to reversals of EGP3 million in 2Q21. Such significant increase in provisions have pressured the bottom-line significantly signaling negative performance on a quarterly basis despite the positive performance of the company. Alternatively, the provisions were 11% lower than 3Q20 which implies the lower growth in total expenses on an annual basis.
Cost-to-income ratio declined sequentially by 200 bps and increased annually by 400 bps to stand at 41%. The sequential expansion came on the back of the limited growth that took place in selling and admin expenses compared to the growth in the operating income. Alternatively, the annual increase took place due to the high growth in selling and admin expenses and depreciation of assets compared to limited increase in operating profits.
EBT declined by 4% sequentially and increased by 7% annually. The sequential decline took place on the back of the booked provisions in 3Q21 compared to reversals in 2Q21, which pressured the bottom-line significantly. On the other hand, the annual expansion was supported by the top-line growth, however, it was pressured by higher OPEX.
Leverage ratio stood at 6.8x, which is lower than the maximum leverage ratio for leasing companies of 9.0x. This implies the effect of the securitization issuance that took place in February 2021.
9M21 is exceptional on the back of securitisation gains and provisions reversals
9M21 takeaways were:
Revenue generated from leasing and factoring activities increased by 5% recording EGP402 million, compared to EGP381 million in 9M20. This came on the back of the improvement in interest income, along with the EGP3 million generated from factoring activities compared to none in 9M20.
Net interest income expanded by 29% due to the 5% decline that took place in the total costs of financing, coupled with the 5% increase in total revenue from leasing and factoring.
Fees income stood at EGP5 million, implying a 8% y/y decline. This can be attributed on the exemption of fees and commissions on financial transactions in 2021.
OPEX surged by 40% y/y, on the back of increased selling and admin expenses (+32% y/y), and depreciation of fixed assets which witnessed a 189% y/y growth.
Booked provisions declined by 127% y/y, on the back of provisions reversals of EGP0.9 million in 9M21 driven by reversals in 2Q21 and low provisioning in 1Q21. Therefore, after looking at the total expenses, it implies only 28% annual increase.
9M21 bottom line recorded EGP117 million, which is 112% higher than 9M20. This significant improvement came in mainly as a result of the securitization gains amounting to EGP65 million, provisions reversals of EGP0.9 million compared to booked provisions of EGP3.4 million in 9M20 as well as higher OPEX driven by higher admin expenses and depreciation of fixed assets. To isolate the effect of the one-off gain, we used an average tax rate of 17% calculated over 1Q20-3Q21 and excluding that of 1Q21 to calculate an estimate of the bottom-line in 9M21 excluding the securitization gain. Our estimate for the bottom-line excluding the one-off gain amounted to EGP73 million, which is 32% higher than the bottom-line in 9M20. This implies healthy growth of the company supported by its leasing activities, top-line growth, and provisions reversals as well.
2021 marked healthy recovery; Maintain Equalweight
ATLC is amongst the top five leasing companies in Egypt in terms of market share. It follows a tight risk management policy as it operated on a 0% delinquency rate over the past twelve years. The majority of ATLC’s leased asset portfolio is dominated by real estate with a contribution ratio of 60-65% which falls in line with the general market trend. ATLC portfolio has witnessed significant growth over the past 3 years and is expected to outperform over the next 5 years on the back of the economic recovery following the pandemic and favorable leasing industry dynamics. Despite the fact that the bottom-line rally was partially driven by one-off gains, the company’s margins remained stable. The stock is currently trading at annualized P/B21 of 0.9x and annualized P/E21 of 3.0x.