KEY THEMES
Qalaa Holdings [CCAP] just posted its Q1 2021 results, which were marred by the negative performance of the Egyptian Refinery Co. (ERC). CCAP’s net losses widened to EGP479mn vs. EGP405mn in Q1 2020 with revenues falling 23% y/y to EGP8bn (-15% q/q). CCAP's GPM deteriorated to 6.9% vs. 10% in Q1 2020. Lower GPM came on the back of ERC facing operational difficulties that led to a 29-day stoppage and 20 days of production slowdown. ERC's quarterly volumes dropped to 606,637 (-41% y/y), with zero volumes produced of jet fuel. Management indicated that ERC incurred net losses of EGP266mn vs. net profits of EGP402mn in Q1 2020, with Gross Refining Margin (GRM) half that of pre-COVID-19 levels. We note that management had previously stated that GRM peaked between November-December 2019 at USD3mn/day. While Q2 2020 had witnessed obvious improvement in terms of crude oil prices as well as the VLSFO-HSFO spread above USD100/ton, we believe that fast forward 2021, the spread is inclined to calm down, as ships savings from scrubbers will start weighing down on VLSFO prices, and accordingly pressuring ERC's GRM.
We note that, excluding ERC performance in Q1 2021, CCAP’s revenues grew 9% y/y, driven by solid performance by TAQA Arabia, in addition to growth witnessed in the cement sector.
NEGATIVE
CCAP: We see Q1 2021 results weighing down on the stock performance at least in the short term.