Eastern Company is targeting an increase of 132% in its net profit in the next fiscal year (FY) 2018/2019, generating EGP 3.25bn, versus estimated profits of EGP 1.4bn in the current FY, the company said in a press release.
The company said that its draft budget for the FY 2018/2019 aims to raise its tax payments to the state treasury by 16% year-over-year.
The cigarette maker aims to pay EGP 57.5bn in taxes in FY2018/2019, compared to EGP 49.7bn in the current fiscal year budget.
The estimated budget targets the production of 87.5bn cigarettes, including 23.6bn cigarettes for export.
Eastern Co is also planning to produce 17,800 tonnes of hookah tobacco, according to the statement.
Eastern Co has hit an all-time high last week, shrugging off the bearish trend the Egyptian Exchange (EGX) is witnessing.
The stock is seeing significant levels due to the rise in tobacco prices, on which the stock surged 54% on 22 November.
Eastern Co’s stock is touching record highs since tobacco prices hiked, which positively impacted the company, financial analyst at Pharos Research Mohamed Hamza said in a research note.
The stock is expected to maintain rising over the coming period on the back of this move, Hamza said.
The Egyptian tobacco company’s revenues are likely to surge to EGP 11.5bn in fiscal year 2017/2018, he forecast, adding that profits are expected to rise to EGP 2.5bn by the end of the current FY.
The company has benefited from its material inventory, which it used to own before the Egyptian pound floatation, he indicated, projecting cost of sales to hike over the coming period after it has finished the inventory, which may narrow down the company’s revenues.
Last January, Pharos Research raised their target fair value (FV) for Eastern Co to EGP 500, maintaining the equal weight recommendation.
The research company has adjusted its model based on Eastern Co’s new pricing scheme, in addition to the sin tax, which is set to be implemented by the end of 2018 in accordance with Egypt’s new healthcare law.
Increased tax will positively impact the tobacco company’s profits, Pharos said, forecasting revenues to surge 13% in fiscal year 2017/2018, with a compound annual growth rate (CAGR) of 12% over the period from FY 2017/18 to FY 2021/22.
Eastern Co’s earnings before interest, taxes, depreciation, and amortisation (EBITDA) are expected to settle between 31% and 33% in FY 2017/18, the report indicated.
“Egypt’s 61bn local brand cigarettes volume, all produced by Eastern Co, highly covers market needs. We expect volumes to grow in coherence with population rise. Tobacco consumption is highly resilient, despite inflation and purchasing power pressure,” the report added.
In November, Eastern Co on announced the new prices of its products after applying the value added tax.
Meanwhile, Eastern Co has been added to the MSCI Egypt global standard index, replacing EFG Hermes, according to a press release by MSCI Inc.
The MSCI Emerging Markets Index currently includes three Egyptian firms: Commercial International Bank Egypt (CIB), Global Telecom, and Eastern Co.
The MSCI EM Index includes 23 countries, accounting for 10% of global markets.
Joining the MSCI Index hinges on liquidity, ease of investment, and transparency. The index includes three Arab markets: Egypt, the UAE, and Qatar.
