Market Chatter
Sidpec 3Q24: Margins surge despite lower PE prices globally; ahead of forecasts
Sidpec reported its 3Q24 results, showing a stable performance on the bottom-line sequentially, although operating performance improved substantially both Y-o-Y and Q-o-Q, as margins surged in the quarter. Net income came in at EGP663mn, flat Q-o-Q, as the stronger operational performance was offset by lower below-EBIT income and higher taxes. Earnings were 11% ahead of our forecast, mainly on much stronger-than-expected margins.
Revenues rose 4% Q-o-Q to EGP3.3bn, which we believe was due to slightly improved volumes, as global PE prices were stable to lower sequentially, though local market prices could have surprised. Revenues missed our forecasts by 19%, as volumes did not recover strongly from the low levels seen last quarter as we had expected.
Gross profit of EGP904mn was up 30% Q-o-Q driven by a massive uplift in margins, with gross margins reaching 27% from 21.6% last quarter, despite lower global PE prices. It is not yet clear whether the substantial margin uplift was a reflection of lower costs or higher local market pricing, which can see differing trends from global prices at times of local shortages. Gross profit beat our forecasts by 13% on much stronger-than-expected gross margin (27% vs c19.5% expectation), though it is not yet clear if this is a function of higher-than-expected realised prices or lower-than-expected costs, and we will need to wait for detailed financials to get more clarity on this. (Company disclosure, Yousef Husseini)
Gov’t hikes fuel prices for third time this year
Ministry of Petroleum and Mineral Resources announced Friday the third fuel price increase in 2024, raising prices of key fuel products on average by 13.5%. The price of diesel, the country’s most widely consumed fuel, was hiked by 17.4% to EGP13.5/litre. Meanwhile, the price per litre of 80-octance gasoline was hiked 12.2% to EGP13.75, that of 92-octane 10.9% to EGP15.25 and that of 95-octane by 13.3% to EGP17. In addition, the price of fuel oil was hiked 11.8% to EGP9,500 per tonne and natural gas for cars 7.7% to EGP7 per cubic metre. The price of fuel oil for power plants and the food industry is still the same. The Ministry’s statement highlighted that the gov’t has decided to keep fuel prices unchanged for the next six months. On another note, the gov’t expected the successive fuel prices hikes to save EGP80bn (USD1.64bn), according to an unnamed gov’t official. Prime Minister Mostafa Madbouly said oil prices remaining around current levels (USD73-74 per barrel) would allow for a much tamer price hike trajectory as the gov’t has budgeted its subsidy bill at USD80 per barrel. Meanwhile, another unnamed official said that new fuel prices cover 85% of the cost of gasoline and 69% that of diesel.
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Our comment: We expect the fuel price hike to elevate the Nov inflation reading, leading inflation to continue accelerating to 27% (from 26.4% in Sep). We had initially expected the end-year inflation range to rise from our previous 23-24% to 25-26% because of this latest fuel price hike. We had accounted for such hikes, but had spread them over two quarters; hence, the decision does not highly affect our medium-term inflation projections. We still expect inflation to slow down significantly in Feb, as the base effect fades away, likely coming within the range of 13-14%. We except policy rate cuts in late 1Q25. (CBE, Asharq Business, Enterprise and Mohamed Abu Basha)
CBE keeps key interest rates unchanged
The Central Bank of Egypt's (CBE) Monetary Policy Committee (MPC) held rates unchanged for the fourth consecutive meeting, in line with our and consensus expectations. The overnight deposit rate was kept at 27.25%, the overnight lending rate at 28.25% and the rate of main operation at 27.75%. Commenting on the recent uptick in headline inflation, the MPC’s statement noted that “the gradual unwinding of food inflation along with improvement of inflation expectations since the beginning of the year suggest that inflation remains on a downward trajectory, albeit restrained by the drag of fiscal measures.” The MPC expected headline inflation to stabilise around current levels in 4Q24 before slowing down in 1Q25 on the cumulative impact of monetary policy tightening and a favourable base effect, it said. The MPC reiterated its view that the current monetary policy stance remains appropriate “until a significant and sustained decline in inflation is realized.” We continue to see such wording, which was also used in the previous MPC statement in Sep, as a clear indicator that the CBE does not intend to cut rates before 1Q25. We, therefore, reiterate our view that policy rates will likely remain unchanged throughout 2024. (CBE, Mohamed Abu Basha)
MoF to issue local green bonds and sukus this year
The Ministry of Finance is looking to issue new sukuk and green bonds worth between EGP5-10bn in 3Q-4Q of the current FY24/25, as part of the gov’t’s plans to diversify financing sources to attract investors and savers into the local debt market, Finance Minister Ahmed Kouchouk said. (Asharq Business)?