14-Aug-2017
Lecico Egypt - 2Q17: Solid earnings for the second quarter in a row on robust revenue growth and margin recovery
Rating: Neutral
Target Price: EGP5.00
Closing Price: EGP5.77
2Q17 earnings of EGP14mn vs loss in 2Q16, broadly in line
Lecico reported strong 2Q17 results, for the second quarter in a row, with earnings of EGP14mn, vs. a loss of EGP40mn in 2Q16 and earnings of EGP19mn in 1Q17, which was almost in line with our forecast of EGP16mn (+15%). The earnings were driven by solid growth in revenue and recovery in margins post EGP devaluation. We will revisit our forecasts to reflect the solid results.
Strong revenue growth on Y-o-Y price hike offset flattish volumes…
Revenue leaped 69% Y-o-Y to EGP586mn, (+7% Q-o-Q, broadly in line with our forecast, +10%). Tiles revenue (36% of total revenue) was up 54% Y-o-Y to EGP185mn on a 52% increase in selling prices driven by the positive impact of EGP devaluation on export prices and the cumulative effect of price increases over the past year and in January 2017. Tiles sales volumes on the other hand were flat Y-o-Y (local +2% Y-o-Y and export -3% Y-o-Y). On a Q-o-Q basis tiles revenue rose 14% as a result of higher sales volumes (+11%), while prices inched up 3%. Sanitary ware (SW) revenue (61% of total revenue) was up 82% Y-o-Y to EGP323mn, entirely driven by the 87% Y-o-Y price increase post EGP devaluation, while sales volume fell 3% Y-o-Y (-7% local and flat export). On a Q-o-Q basis revenue was up 7% driven by a 13% price increase, while volumes dropped 6%.
…leading to margin improvement despite cost increase
Gross profit surged 167% Y-o-Y (in line with our estimate) and improved c10pp, while EBITDA reached EGP78mn (-9% Q-o-Q, broadly in line, -8% EFGe) versus EGP6mn in 2Q16. The EBITDA margin thus improved 11pp to 13.2% (-3pp vs EFGe) thanks to solid revenue growth, offsetting the impact of cost increases post devaluation; COGS was up 49% Y-o-Y.
Recent development: acquisition of 10% of Lecico’s shares as treasury stock
Lecico recently acquired its targeted treasury stock acquisition of 10% of outstanding shares (8mn shares). These shares were acquired on a prorate basis at an extraordinary price of EGP6.0/share. Lecico received requests to participate in this treasury share acquisition from 15,020,494 shares and accordingly acquired 53.3% of all offered shares. As per Lecico’s management, the main aim was its management’s belief in the turnaround in the company’s performance.
Tarek El-Shawarby
Target Price: EGP5.00
Closing Price: EGP5.77
2Q17 earnings of EGP14mn vs loss in 2Q16, broadly in line
Lecico reported strong 2Q17 results, for the second quarter in a row, with earnings of EGP14mn, vs. a loss of EGP40mn in 2Q16 and earnings of EGP19mn in 1Q17, which was almost in line with our forecast of EGP16mn (+15%). The earnings were driven by solid growth in revenue and recovery in margins post EGP devaluation. We will revisit our forecasts to reflect the solid results.
Strong revenue growth on Y-o-Y price hike offset flattish volumes…
Revenue leaped 69% Y-o-Y to EGP586mn, (+7% Q-o-Q, broadly in line with our forecast, +10%). Tiles revenue (36% of total revenue) was up 54% Y-o-Y to EGP185mn on a 52% increase in selling prices driven by the positive impact of EGP devaluation on export prices and the cumulative effect of price increases over the past year and in January 2017. Tiles sales volumes on the other hand were flat Y-o-Y (local +2% Y-o-Y and export -3% Y-o-Y). On a Q-o-Q basis tiles revenue rose 14% as a result of higher sales volumes (+11%), while prices inched up 3%. Sanitary ware (SW) revenue (61% of total revenue) was up 82% Y-o-Y to EGP323mn, entirely driven by the 87% Y-o-Y price increase post EGP devaluation, while sales volume fell 3% Y-o-Y (-7% local and flat export). On a Q-o-Q basis revenue was up 7% driven by a 13% price increase, while volumes dropped 6%.
…leading to margin improvement despite cost increase
Gross profit surged 167% Y-o-Y (in line with our estimate) and improved c10pp, while EBITDA reached EGP78mn (-9% Q-o-Q, broadly in line, -8% EFGe) versus EGP6mn in 2Q16. The EBITDA margin thus improved 11pp to 13.2% (-3pp vs EFGe) thanks to solid revenue growth, offsetting the impact of cost increases post devaluation; COGS was up 49% Y-o-Y.
Recent development: acquisition of 10% of Lecico’s shares as treasury stock
Lecico recently acquired its targeted treasury stock acquisition of 10% of outstanding shares (8mn shares). These shares were acquired on a prorate basis at an extraordinary price of EGP6.0/share. Lecico received requests to participate in this treasury share acquisition from 15,020,494 shares and accordingly acquired 53.3% of all offered shares. As per Lecico’s management, the main aim was its management’s belief in the turnaround in the company’s performance.
Tarek El-Shawarby