M+S Hydraulic revealed 38.9% YoY increase in 2021 uncons revenue; fourth-quarter margins tapered on costs pressure; expects 5% YoY sales growth down the road (NEUTRAL)

28.01.2022 Source: M+S Hydraulic; FFBH

M+S Hydraulic's Q4 2021 unconsolidated revenue grew 26% YoY to BGN 41.5m. OPEX increased to BGN 34.5m (+44.8% YoY), driven by surge in compensations (+53.8% YoY; BGN 12.6m) and cost of materials (+38.9% YoY; BGN 18.5m). Outstripping growth of expenses, driven by the hike in electricity prices and international prices of basic raw material led to a 22.9% YoY decline in Q4 EBITDA, which amounted to BGN 7m, and cased 10.7 p.p. YoY deterioration in respective margin to 16.9%. Net profit for the quarter fell faster by 29.6% YoY to BGN 4.2m due to the increase in depreciation expenses (+3.6% YoY; BGN 2.3m), while NI margin erased 8.0 p.p. YoY and stood at 10.2%. 2021 MSH uncons revenue jumped by 38.9% YoY to BGN 151.7m. Operating expenses amounted to BGN 121.4m (+44.8% YoY) due to the substantial increase in cost of materials (+49.3 YoY; BGN 68.5m) and remunerations (+37.7% YoY; BGN 41.7m). However, this led to 19.4% YoY increase in 2021 EBITDA to BGN 30.3m, on a 20% margin (-3.3 p.p. YoY). Despite unfavourable growth of input prices and weak profitability in Q4, bottom line registered 23.7% YoY growth to BGN 18.8m, with respective margin of 12.4% (-1.5 p.p. YoY). This translates to an EPS of BGN 0.48 for 2021. Moreover, we estimate that 2021 net income, adjusted for government financing, should have been circa 120% YoY higher, as the company received substantial BGN 6.8m state aid for employment retention in 2020, compared BGN 0.3m in 2021. On a separate note, the management revealed the expectations for an increase in net sales revenue by 5% YoY in 2022 to BGN 159m, despite the uncertain situation, as well as higher remuneration costs. On the balance sheet, non-cash working capital increased by BGN 7.3m in 2021 to BGN 19.4m, mainly on 71% YoY growth in account receivables where turnover ratio dropped to 5.9x (7.3x a year ago). CAPEX amounted to BGN 7.6m (-25.2% YoY), while CFO declined 19.2 YoY to BGN 20.2m consistent with higher working capital.