FESCO Bottom-Line Improves On the Back of Lower Direct Costs

• For its audited financial year ending March 2021, FESCO reported a modest year on year increase in net profit (3.2%) to $108.16Mn (EPS: $0.043). 
• Revenues fell by 1.4% (or $82.82Mn), reflecting the effects of the restrictions on mobility due to the COVID-19 containment measures on the demand for gasoline. However, direct costs fell by 1.7% (or $96.06Mn) which saw gross margin improving for the third consecutive year to 3.3% in 2021 from 3.0% in 2020. 
• However, operating and admin expenses grew by 10.1% (or $5.44Mn), along with impairment losses on financial assets (55.0% or $268.15Mn), but they were not enough to offset the gains earned from the decline in direct costs. As such, its operating income still grew by 6.1% (or $7.54Mn). 
• FESCO’s performance is likely to continue to be hampered by the closure of schools and work from home in the near term. However, the recent easing of restrictions should support more social activities and travelling influencing higher demand for gasoline. Additionally, the planned resumption of in-person schooling in September 2021 should foster an increase in the demand for fuel. That being said, another spike in new cases later this year which forces the government to reinstitute stricter containment measures, would constrain revenue growth. 
• FESCO’s stock price has appreciated by 47.5% since listing at its IPO price of $0.80.  At its last closing price of $1.18, the shares currently trade at a P/E of 27.0x earnings. This is largely in line with the junior market distribution sector average of 27.1x earnings.

(Source: Company Financials & NCBCM Research)