Misr Chemical Industries [MICH]: Annually Wild, Quarterly Tamed
Overweight and 12M PT maintained
Misr Chemical Industries [MICH]
Egypt / Materials / Q2 2021/22 Results
12M PT: EGP13.9 (+38%)
set on 14 Nov 2021
Investment Rating: Overweight | Risk Rating: High
Strong annual growth despite sequential deficiencies
Misr Chemical Industries’ [MICH] earnings performance in Q2 2021/22 represented a continuation of a remarkable performance, as MICH achieved a bottom line of EGP46mn vs. EGP40mn a year earlier (+15% y/y). The main driver behind such a strong earnings performance y/y is a solid top line of EGP132mn (+8% y/y), coupled with robust margins; GPM came in at 52.6% vs. 45.5% in Q2 2020/21 (+7.1pp y/y). However, the negative takeaway from Q2 2021/22 is the weak sequential performance, as revenues declined q/q by 5%, factoring in weaker sales volumes, pulling back bottom line 8% q/q.
Balance sheet remains prosperous in 2021/22
MICH’s balance sheet exhibited a strong accumulation of cash balance, which corresponds to c.43% of total current market cap, thanks to MICH’s light working capital needs. During Q2 2021/22, working capital as a percentage of revenues stabilized at 9% vs. a median of 9% since 2018/19 on a quarterly basis.
It’s a good time for global chlor-alkali margins
Average selling prices for chlor-alkali players continued to be in a good shape in H2 2021 (corresponding to MICH’s H1 2021/22) due to supply tightness of chlorine and caustic soda. The situation of disrupted supply got amplified by hurricanes in the U.S., besides shutdowns in a number of European factories. Also, the limit of industrial usage of electricity in China further kept the Asian output at bay. Consequently, this led to notably higher global prices of both of the electrochemical unit (ECU) components (i.e. caustic soda and chlorine). Over the long run, news about increasing Egypt’s water desalination capacity, besides allowing the private sector to take part, should serve as the main long-term catalyst for MICH.
Overweight and 12M PT maintained
MICH has achieved an average monthly bottom line of EGP16mn during H1 2021/22. While we do not expect such a pace to continue, we see MICH achieving a low double-digit annual earnings growth, ending 2021/22 with a bottom line of EGP147mn (+10% y/y). MICH is currently traded at 2021/22e P/E of 5.0x and EV/EBITDA of 2.0x. In view of Q2 2021/22 results, we maintain our rating for MICH at Overweight. We also maintain our 12MPT at EGP13.9/share, offering a 38% upside to Thursday’s closing price. We note that MICH is one of the 15 stocks we picked in our STANDPoint 2022 strategy outlook published on 30 January 2022.
Mohamed Saad
Vice President, Research
T +202 3300 5719