Interest expense to keep weighing on GB Auto profitability: Pharos

CAIRO – 12August 2017: Higher interest expenses by 20.5 percent quarter-on-quarter and 142.1 percent year-on-year contributed to GB Auto's LE 150.9 million losses in the second quarter of 2017, Pharos said Thursday.

Pharos said the interest expense grew on the back of the central bank’s latest two percent interest rate hike and a high debt level of LE 5 billion. Margin contraction was also a reason behind the losses incurred, as the gross profit margins stood at 11.3 percent down 5.5 percent quarter-on-quarter and 3.1 percent year-on-year.

Revenues rose 6.3 percent to LE 4.17 billion year-on-year in the second quarter of 2017 and increased 4.2 percent to LE 7.14 billion in the first half of the year.

Egypt PC revenues amounted to LE 1.27 billion, up 43.1 quarter-on-quarter, while declining 38.8 percent year-on-year.

The improvement was triggered by promotional activities and dealer compensation packages which led to gross margin of 4.6 percent.

“We expect margins to remain pressured in the short to medium term as AUTO’s main focus is to alleviate the inventory buildup and deleverage their balance sheet," the report said.

The second quarter's revenue growth was driven by GB Auto and GB Capital, recording LE 3.5 billion and LE 584.8 million standalone revenues in the second quarter.
GB Capital reported revenues of LE 790.4 million up 1.5 percent quarter-on-quarter and 25.8 percent year-on-year.

GB Capital enjoys a net interest margin of 9.7 percent and good asset quality reflected in their non-performing loan (NPL) ratio of 0.53 percent. Revenues after inter-company revenues amounted to LE 584.8 million down 2.1 percent quarter-on-quarter while increasing 32.4 percent year-on-year and contributed 14.0 percent to total group revenue, Pharos said.

Pharos maintained Equal-weight recommendation on GB Auto, adding that the group will incorporate the financing business independently, listing the downside risks on the group to include the inability to deleverage balance sheet given financing needs for expansions plans, further weakness in the PC market and Additional interest rate hikes by the CBE.