Egis has issued a profit warning saying that according to the presently available information their 1Q07 sales amounted HUF 22.3bn (down 24% y/y) and pre-tax profit was HUF 1.3bn (down 81% y/y). The company has indicated it lowered its CIS sales guidance from +25% y/y to +15% y/y for FY 2007/06 on the back of changed inventory policy at it’s largest Russian buyer, distribution company Protek. Furthermore, it has booked HUF 1.6bn loss on the revaluation of trade receivables on the back of adverse cross currency changes (weakening USD to HUF).
Our view: We believe, the explanation Egis gave to its profit warning prompts us that we should expect a temporary setback of results, rather than expect a longer term fundamental problem on the CIS markets (lower sales dynamics and extended payment periods). Still, we will revise our net profit estimates downwards as the warning’s 1Q07 sales and pre-tax profit figures were 17.9% and 7.5% of our full year forecast respectively.