Misr Chemical Industries [MICH]
Egypt / Materials / Core Coverage Report
12M PT EGP13.9 (+23%, as of 25 Nov 2020)
Investment Rating: Overweight | Risk Rating: High
Key Insights
A multi-boosted business model
Misr Chemical Industries [MICH] came in this year with an interesting turnaround story, anchored by (1) considerable cost savings and (2) resilient top-line figures. Through the years, the chloralkali manufacturer has been exposed to risks associated with hikes in electricity prices and fluctuating caustic soda and chlorine markets. However, the COVID-19 pandemic brought about sound demand for MICH’s key products and byproducts. Going forward, we believe MICH’s performance will stabilize at levels above historical average, driven by this pandemic-related recovery.
Strong growth to normalize post COVID-19 peak
We project earnings to grow at a 5-year CAGR (2019/20-2024/25) of 10%, as (1) average selling prices normalize and (2) factory utilization rates settle at 55%. Meanwhile, we see GPMs capped at 2020/21 levels as selling prices cool off. Hence, we project long-term GPM will be near 43%, assuming stable electricity prices. MICH boasts a cash-rich balance sheet, with net cash making up 24% of its market cap due mainly to its light working capital needs (averaging 10% of sales historically).
Further growth to come from water desalination
Egypt plans to more than triple its desalination capacities over the next decade. Capitalizing on this, MICH should further see higher chlorine sales.
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Mohamed Saad
Equity Analyst
T +202 3300 5719