EUR 35.72 For Business Accounts Only

MTIE EY | Maintain OW, as diversity guards against ST gusts

Sheer recovery ahead. MTI’s diversified offering is paving the way for recovery in 2021e (accelerating in 4Q21e), albeit at a slower pace, stalled by sustained global supply disruptions. We roll over our DCF yet hold our 12M TP at EGP9.30/share, with 14% lower 2021-25e EBITDA, on average, reflecting this lengthy retrieval. We look for robust EPS pickup (+31% over 2021-23e vs. peers’ c14%), boosted by: i) a rebound in mobile sales, post Huawei’s fallout, on lack of launches, and ii) investment income ramp-up (+72% over 2021-25e). We remain buyers, despite trading in line with peers (2022e P/E of 15.8x), as we are fond of MTI’s strategy to develop a favourable mix in its core segment, while offering an exposure to e-payments (c25% of TP, valued at 35x 2025e P/E) via its investments. Using our estimated EGP3.35bn valuation for Ebtikar, a 2-9% dividend yield can be unlocked, with 10-40% stake dilution, should MTI fully distribute its share of Ebtikar’s IPO proceeds.

Revival mode on in core segment. Resumption of Huawei’s mobile launches by end-3Q21 should help bounce back its market share to 9% in 2022e (vs. 3% in 2Q21 and 10% in 2020), ensuring solid recovery for consumer electronics (CE) sales (+28% y-o-y). This is supported by sustaining Samsung’s share gains, post 1Q21 mid-range launches, remaining at c34% (+5pp y-o-y in 2021e), with both brands normalising below historical levels, on sustained competition from Chinese brands. The ramp-up of high-margin appliances (26% of 2021e CE) should enhance the sales mix, with CE’s GPM reaching 9% in 2024e vs. c8% in 2021e, with upside from new brand additions.

Auto fuelling growth, despite headwinds. While JLR allocations appear to be on track for 4Q21 supply, partially resolving 3Q21 deliveries’ shortfall, amid the global semi-conductor shortages, we expect MTI to fall 10% short of its 1.1k car target in 2021e (626 in 1H21). Still, we are unconcerned, looking for an average c16% p.a. volume growth over 2021-22e, thanks to MTI’s solid backlog. We look for steady auto GPM recovery to 20.7% in 2022e (+c1pp y-o-y) and 21% by 2024e, on a pickup in after-sales services in 2022e, while capping low-margin dealers’ exposure (25%).

An attractive investment portfolio, with triggers ahead. Investment income should pick up, making up 13% of MTI’s 2024e earnings (vs. 1% in 2020), as we recognise the room for Ebtikar’s growth (49.9% stake), despite its early stage, with one-off restructuring costs incurred, ahead of the planned IPO (4Q21). Finalising VFE’s deal (acquisition of 20% in each e-payment platform, via capital increase at par; pending the CBE’s approval) should be a trigger, in our view, expanding its growth prospects via service expansions, and ensuring sizable access to VFE wallet (65% of market).