KEY THEMES
Misr Cement - Qena [MCQE] saw its consolidated net sales increase 7.9% y/y to EGP572mn in Q2 2021, driven by higher prices. Meanwhile, volume decreased by 5.3% y/y to 0.71mn tons, mostly weighed down by lower local volume, despite an exports surge of 163% y/y to 82,000 tons. MCQE's gross profit recovered (+28% y/y to EGP113mn), as well as EBITDA (+28% y/y to EGP102mn). Meanwhile, net income grew notably by 129% y/y to EGP32mn. MCQE managed to deleverage its balance sheet, with debt decreasing to EGP906mn in H1 2021 (-14% y/y). Sustaining this pace would reduce interest expense in H2 2021. Improvement in performance is also the product of a very weak base in 2020.
Healthier margins: In Q2 2021, efficient cost-cutting measures widened gross profit margin to 19.8% (vs.16.7% in Q2 2020), EBITDA margin (17.8% vs. 14.9% in Q2 2020), and net margin (5.6% vs. 2.6% in Q2 2020).
Capacity cut yet to make impact: Recently, the Egyptian Competition Authority (ECA) approved cutting the production capacity for 23 cement companies, including MCQE. The decision was a product of tough operating environment and local oversupply of cement. As this decision became effective in July 2021, its impact on MCQE financials will only be seen starting Q3 2021. MCQE has announced before that it will update its 2021 budget after the ECA greenlighted production cut.
MCQE is traded at a TTM P/E of 33 after the stock appreciated aggressively since last July by as almost 90%.