Earnings Announcement | Domty 3Q19 Results

Food & Beverage| Egypt

Tuesday, 12 November 2019

Bakery Segment Saves the Quarter Reuters Ticker DOMT.CA

Recommendation BUY
Net profits went up 46% during 3Q19: Arabian Food Industries Co.“Domty”
(DOMT.CA) released its 3Q19 results, showing a strong increase of 46% Y-o- Fair Value (EGP) 10.21
Y (+35% Q-o-Q) in its earnings to EGP 50.69mn, translating into higher NPM Last Price (EGP) 8.45
of 7% vs 5% in 3Q18. Domty was able to achieve this growth in earnings for
Upside 21%
three main reasons: (1) a higher revenue of 4% Y-o-Y to EGP 720.22mn, (2)
an overall better margins during 3Q19, as GPM widened by 3 pp Y-o-Y to Market Cap (EGPmn) 2.38
27% and EBITDA margin widened by 2 pp to 15%, and (3) a decrease of 26% No. of Shares (mn) 282
Y-o-Y in the company’s interest expenses during the quarter. On a 9M basis,
Domty’s earnings exhibited a decline of 12% Y-o-Y to reach EGP 117.04mn.
Revenues increased on a strong performance from the bakery segment: Domty delivered revenue growth of 4% Y-o-Y, coming in
at EGP 720.22mn in 3Q19. Still, the main driver behind its revenue growth is the bakery segment (i.e. domty sandwich), which
largely grew to EGP 78.45mn in 3Q19 from its launch phase in 3Q18. The company’s other major segments continued to struggle
through 2019, with the cheese segment (76% of total) falling by 7% Y-o-Y, coming in at EGP 546.08mn and the juice segment (13%
of total) decreasing slightly by 1% Y-oY to EGP 95.69mn. On a 9M basis, revenue grew a little by 2% Y-o-Y, recording EGP 2.02bn.
Margins improved on a better sales mix: Gross profit for the quarter came in at EGP 191.05mn (+18% Y-o-Y, ), implying a gross
profit margin of 27% vs (23% in 3Q18, 25% in 2Q19). EBITDA went up 23% Y-o-Y to EGP 104.47mn, translating into a higher EBITDA
margin of 15% vs (12% in 3Q18 & 2Q19). The expansion in Domty’s margins during 3Q19 came as a result of a higher contribution
of better margins products (bakery segment) to total revenue and despite the increase of 17% Y-o-Y in SG&A expenses to EGP
107.67mn.
In sum, Domty’s 3Q19 results were quite positive in our view, offsetting the depressing results reported in 1Q19 and 2Q19.
Moreover, 3Q19’s results confirm the management view of a better 2H19 (mentioned last May) and mark the highest in terms of
sales and the second highest in terms of net profit of the company's history. We have a buy rating on Domty with a target price
of EGP 10.21/share, implying an upside potential of 21% from the stock’s last price.

Results Summary
EGPmn 9M 19 9M 18 Y-o-Y 3Q 19 3Q 18 Y-o-Y 2Q 19 Q-o-Q
Net Sales 2,022 1,976 2% 720 691 4% 647 11%
Gross Profit 510 477 7% 191 162 18% 158 21%
EBITDA 257 282 -9% 104 85 23% 80 30%
Net Income 117 133 -12% 51 35 46% 37 35%
Gross Profit Margin 25.24% 24.14% 110 bps 26.53% 23.39% 313 bps 24.49% 204 bps
EBITDA Margin 12.70% 14.25% -155 bps 14.51% 12.34% 217 bps 12.44% 206 bps
Net Margin 5.79% 6.72% -93 bps 7.04% 5.03% 201 bps 5.80% 124 bps
Source: Company Disclosure

Mohamed Sobol
Mohamed.sobol@sigma-capital.com

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 Domty
Earnings Announcement | 3Q19 Results | Food & Beverage| Egypt Tuesday, 12 November 2019

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 Domty
Earnings Announcement | 3Q19 Results | Food & Beverage| Egypt Tuesday, 12 November 2019

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Earnings Announcement | 3Q19 Results | Food & Beverage| Egypt Tuesday, 12 November 2019

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