M + S Hydraulic Q3’13 uncons net income up 44% YoY as sales rise 21% YoY and EBITDA margin remains stable; company lowers full-year sales forecast (NEUTRAL)

M + S Hydraulic’s unconsolidated sales for Q3’13 jumped 21% YoY to BGN 20.8m from a low-base Q3’12 as exports rose 17% YoY to BGN 17.4m and sales on the domestic market increased 48% YoY to BGN 3.2m. Materials and compensation costs rose at a slower pace than revenue, by 19% and 15% YoY, respectively, but hired services expenses added 38% YoY mainly due to a 68% YoY surge in expenses for subcontractors and hired transportation. As a result, the EBITDA margin remained stable at 20.5% vs. 20.4% for Q3’12. Net income surged 44% YoY to BGN 2.4m as depreciation charges remained flat and net interest income increased by 50% YoY. 9-mo sales advanced by 4% YoY to BGN 66m but EBITDA slid 1% YoY to BGN 15.2m as OPEX rose 6% YoY due to higher expenses for hired services (+14% YoY), mainly for subcontractors and hired transportation. The EBITDA margin was down to 23.1% from 24.3% for the year-ago period, reflecting also higher materials costs for the first two quarters. Net income was down 2% YoY to BGN 9.3m as higher net interest income, in line with the increasing cash position of the company, compensated for the 2% rise in the depreciation charges. M + S Hydraulic revised downward its full-year sales target to “more than BGN 85m” from “more than BGN 87m” expected in Q2’13, which would translate in 6.4% growth over 2012 and 16% rise in Q4’13 revenues to BGN 19m. Inflows from clients dropped 4% YoY to BGN 67.5m, while payments to suppliers remained flat for 9-mo 2013 at BGN 40.8m, thus the CFO was down to BGN 10.5m from BGN 11.1m in the year-ago period. In the past quarter the significant rise in both payables and receivables continued, only this time the increase in payables (+40% YTD to BGN 10.5m) was higher than the rise in receivables (+ 27% YTD to BGN 18.8m). The CCC deteriorated to 86 days from 78 days for 9-mo 2012.