16-May-2017
SODIC - 1Q17: Healthy operating metrics, strong deliveries drive reported numbers
Rating: Buy
Target Price: EGP20.0
Closing Price: EGP13.9
EGP1.2bn in contracted sales from three new launches; healthy operating metrics
SODIC booked EGP1.2bn in net contracted sales in 1Q17 (+71.2% Y-o-Y, -51.4% Q-o-Q vs. an exceptionally strong quarter). Number of units sold rose 50% to 340 units. Contracted sales numbers have also benefited from a 20-30% rise in prices, which was passed on to end buyers in 4Q16. The quarter saw three new launches, with a combined value of EGP1.7bn; namely: a new offering in Eastown (80% sold), One16 and October Plaza, in the West of Cairo. Other operating metrics were healthy; these include: cash collections (1Q17: EGP896mn, +35.3% Y-o-Y, -9.9% Q-o-Q), cancellation rate (1Q17: 5%, 1Q16: 8%, 4Q16: 2%), and delinquency rates (1Q17: 5%, FY2016: 2%). We expect contracted sales to come in at EGP5.8bn in 2017 (management guidance: EGP5.6bn). Sales from New Heliopolis project will start in 4Q17, in our numbers, making up 15% of the contracted sales figure in 2017.
Net income beats estimate on higher-than-expected revenue and margins
The number of units delivered in 1Q17 was 399 (1Q16: 101 and 4Q16: 474), with deliveries at Eastown and Westown Residences accounting for more than 90% of the units delivered. Revenue came in at EGP703.5mn (+276.6% Y-o-Y, -23.2% Q-o-Q, EFGe: +17.2%). Gross profit was at EGP258.6mn (+235.4% Y-o-Y, -31.8% Q-o-Q), translating into a gross profit margin of 36.8% (1Q16: 41.3%, 4Q16: 41.4%). EBIT totalled EGP215.4mn (+330.3% Y-o-Y, +14.5% Q-o-Q), translating into an EBIT margin of 30.6% (+3.8pps Y-o-Y, +10.0pps Q-o-Q). Net income beat estimate by 134%, coming in at EGP211mn (+311.9% Y-o-Y, +21.8% Q-o-Q), supported further by increased income from unit cancellation and interest earned on installments. SODIC’s balance sheet continues to be highly liquid, closing the quarter with a net cash position of EGP1.5bn (Dec-16: EGP1.4bn). An EGP1bn investment was made in treasury bills during the quarter, which should reflect positively on interest income over the coming quarters.
One of our top picks; stock underperformance leaves 44% in upside potential
Investor concerns related to limited residual land bank and absence of planned launches at the North Coast in the summer are overestimated, in our view, making the recent stock underperformance unjustifiable. We expect SODIC’s performance to continue to be strong, owing to the company’s resilient pricing power and ability to pass on cost increases to buyers. This was evident in the company’s contracted sales in 4Q16 and 1Q17.
Mai Attia
Sara Boutros
Target Price: EGP20.0
Closing Price: EGP13.9
EGP1.2bn in contracted sales from three new launches; healthy operating metrics
SODIC booked EGP1.2bn in net contracted sales in 1Q17 (+71.2% Y-o-Y, -51.4% Q-o-Q vs. an exceptionally strong quarter). Number of units sold rose 50% to 340 units. Contracted sales numbers have also benefited from a 20-30% rise in prices, which was passed on to end buyers in 4Q16. The quarter saw three new launches, with a combined value of EGP1.7bn; namely: a new offering in Eastown (80% sold), One16 and October Plaza, in the West of Cairo. Other operating metrics were healthy; these include: cash collections (1Q17: EGP896mn, +35.3% Y-o-Y, -9.9% Q-o-Q), cancellation rate (1Q17: 5%, 1Q16: 8%, 4Q16: 2%), and delinquency rates (1Q17: 5%, FY2016: 2%). We expect contracted sales to come in at EGP5.8bn in 2017 (management guidance: EGP5.6bn). Sales from New Heliopolis project will start in 4Q17, in our numbers, making up 15% of the contracted sales figure in 2017.
Net income beats estimate on higher-than-expected revenue and margins
The number of units delivered in 1Q17 was 399 (1Q16: 101 and 4Q16: 474), with deliveries at Eastown and Westown Residences accounting for more than 90% of the units delivered. Revenue came in at EGP703.5mn (+276.6% Y-o-Y, -23.2% Q-o-Q, EFGe: +17.2%). Gross profit was at EGP258.6mn (+235.4% Y-o-Y, -31.8% Q-o-Q), translating into a gross profit margin of 36.8% (1Q16: 41.3%, 4Q16: 41.4%). EBIT totalled EGP215.4mn (+330.3% Y-o-Y, +14.5% Q-o-Q), translating into an EBIT margin of 30.6% (+3.8pps Y-o-Y, +10.0pps Q-o-Q). Net income beat estimate by 134%, coming in at EGP211mn (+311.9% Y-o-Y, +21.8% Q-o-Q), supported further by increased income from unit cancellation and interest earned on installments. SODIC’s balance sheet continues to be highly liquid, closing the quarter with a net cash position of EGP1.5bn (Dec-16: EGP1.4bn). An EGP1bn investment was made in treasury bills during the quarter, which should reflect positively on interest income over the coming quarters.
One of our top picks; stock underperformance leaves 44% in upside potential
Investor concerns related to limited residual land bank and absence of planned launches at the North Coast in the summer are overestimated, in our view, making the recent stock underperformance unjustifiable. We expect SODIC’s performance to continue to be strong, owing to the company’s resilient pricing power and ability to pass on cost increases to buyers. This was evident in the company’s contracted sales in 4Q16 and 1Q17.
Mai Attia
Sara Boutros