October 29, 2021/Cordros Report

NASCON published its Q3-21 unaudited financials after market close yesterday. The result showed that Q3-21 standalone PAT grew by 20.4% y/y to NGN965.16 million with EPS settling at NGN0.36/share, bringing 9M-21 EPS to NGN0.91/share (+5.5% y/y).  The PAT growth was supported by higher operating income (+296.7% y/y).
 
Revenue grew by 0.5% y/y to NGN7.38 billion in Q3-21 (+14.5% y/y to NGN24.95 billion in 9M-21). The revenue growth was mainly supported by higher salt volumes, following the expansion of its refined salt plant capacity from 82kmt to 250kmt. Across NASCON’s regional footprint, revenue from the West (40.4% of total revenue) increased by 52.4% y/y in Q3-21 despite intense competition, especially in the seasonings segment. Conversely, revenue from the North (50.5% of total revenue) plummeted by 21.6% y/y, while revenue from the East (9.1% of total revenue) grew slightly by 5.8% y/y. We believe the stronger revenue growth in the Western market reflects management’s strategy to penetrate other regions asides from its dominant region – the North.
 
Gross margin dipped by 124bps to 41.5% in Q3-21 (Q3-20: 42.8%), as the cost of sales (+2.6% y/y) outpaced revenue (+0.5% y/y). The increase in the cost of sales was influenced by a 1.8% y/y increase in the cost of raw materials in Q3-21. In addition, increases in manufacturing expenses (+9.5% y/y) and employee costs (+6.5% y/y) also contributed to the higher cost of sales.
 
Consequently, EBITDA margin declined by 111bps to 46.5% in Q3-21 (Q3-20: 47.6%) following the gross margin decline and higher operating expenses (+10.0% y/y).
 
Further down, a 140.8% y/y surge in net finance costs tempered NASCON’s earnings. We highlight a 65.5% y/y increase in finance costs emanating from the overdraft facility obtained in the quarter.
 
Overall, PBT rose by 19.4% y/y to NGN1.42 billion (Q3-20: NGN860.24 million). Following a tax expense of NGN454.19 million, profit after tax (+20.4% y/y) printed NGN965.16 million in Q3-21 (Q3-20: NGN860.24 million).
 
Comment: Although we are impressed that the company is penetrating other regions asides from the North, the revenue outturn remains suboptimal, given the expansion of the refined salt plant. We believe management’s adoption of a low-price strategy to drive volume growth has limited revenue growth potentials. As a result, we expect revenue to maintain the slow-paced expansion in Q4-21 in the absence of substantial price increases across product segments. Notwithstanding, we expect NASCON to deliver positive performance in 2021FY. Our estimates are under review.