EUR 41.45 For Business Accounts Only

MTIE EY | A well-diversified portfolio set to unlock value; OW

A promising agile strategy, despite 2020e hurdles. Delays in Samsung and Nokia launches globally to end 4Q20, amid the COVID-19 induced turbulences, weighed on consumer electronics (CE) 2020e revenue (-17% y-o-y), overshadowing MTI’s diversification strategy. Yet, we highly rate MTI’s efforts to branch out via adding high-margin products under its CE portfolio and expanding its retail presence (CE’s K-mobile, +1 auto showroom, and VFE shops). This, along with resumption of mobile launches, should pave the way for recovery from the short-lived hiccups, reaping fruits of a more favourable sales mix, and triggering further stock rerating, along with positive e-payment developments. MTI offers robust EPS growth (31% over 2020-22e vs. peers’ c23%), trading 19% below peers on a 2021e P/E of 13.5x.

Core segment on path for recovery, while Auto turns into key segment. New mobile launches should support the 28% y-o-y recovery we foresee in 2021e CE sales, as Huawei (26% of CE) regains ground, from a low base, faster than Samsung (56% of CE), thanks to its competitively priced launches. However, as aggressive competition with other Chinese brands persists, Samsung and Huawei market shares should stabilise below historical levels (31.5% and 17.4% in 2024e, respectively). Meanwhile, demand on luxury cars should remain solid, supported by JLR’s competitively priced offerings, while shielded by MTI’s high-end clients’ robust purchasing power (+24% y-o-y in 2021e sales, c17% of MTI’s revenue).

Positive margin trajectory, as favourable sales mix holds up. CE’s GPM is set to improve (9.1% in 2022e vs. c8% in 2019), on rising contribution of the higher-margin Huawei and Nokia (8-10% vs. 6% for Samsung), and appliances (10-12%). Auto GPM should normalise at c21%, on cutting dealers (20% vs. 40% previously) and selling via own showrooms (second one to open in 4Q20), buoyed by growing the high-margin after-sales services, pushing MTI’s 2022e EBITDA margin to 7.4% (vs. 6.5% in 2019). Faster ramp-up of recent appliances launches (Bosch in 2018, Daikin ACs and Syinix TVs in 2020), and widening their offering pose an upside.

Pivotal time for Ebtikar, within a nascent market. We see Ebtikar (MTI’s stake of 49.9%) as a medium-term story via its e-payment and NBF offerings (22% of our TP), with investment income making up 12% of MTI’s 2024e earnings vs. 7% in 2019). This is backed by the expected surge in e-payments/GDP (9.8% by 2024e vs. c4% currently and EM’s 2018 average of 14%), due to Egypt’s focus on financial inclusion, with ample room for banking penetration (currently c32% vs. 42.7% for peers).