• 3Q16 net income disappoints consensus and our forecast Maaden reported its 3Q16 results this morning with net income plunging 37% Q-o-Q to SAR84mn (+5% Y-o-Y), below our (-32% vs. EFGe) and consensus (-26%) forecasts. Gross profit came in at SAR510mn, down 6% Q-o-Q and 7% below our forecast, while operating income fell 6% Q-o-Q to SAR307mn (-7% vs. EFGe). The steep pullback in earnings Q-o-Q came mainly on the back of i) lower DAP (-4%) and ammonia (-22%) prices; ii) lower volumes across the board (DAP -5%, gold -10%, aluminium -2%); and iii) increased losses at its JV investments (SAMAPCO & MBCC).
• Earnings miss on lower-than-expected volumes & income from JVs We believe the miss was mainly due to lower-than-expected gold (-20% vs. EFGe) and DAP (-5%) volumes, in addition to larger-than-expected losses at SAMAPCO and MBCC (SAR31mn in losses vs. our SAR5mn loss forecast). The company clarified at its conference call that the fall in DAP sales was related mainly to the timing of shipments and was unrelated to the health of the underlying business. While we were surprised by the drop in gold sales volume, given the start-up of Ad Duwayhi earlier in the year, management noted that volumes should expand considerably going forward, as Ad Duwayhi still has ways to go before it reaches full output.
• Other highlights: Margins resilient; interest expenses still rising Despite the huge drop in DAP and ammonia prices, gross margins were resilient at 22% (21% in 2Q16, in line with EFGe) likely on the back of continued cost improvements / productivity enhancements across operations as well as higher gold (+6%) and aluminium prices (+3%). Interest expenses jumped 87% Y-o-Y and 5% Q-o-Q as the SAIBOR continues to increase amid tight liquidity in Saudi Arabia. Waad Al Shamaal DAP plant has reached over 70% completion as at end 3Q16. Finally, Jabal Sayid Copper Mine has progressed well following start-up with c9.9ktonnes (full run rate would be 11.25kt) of copper produced since start of commercial operations on 1 July 2016.

Yousef Husseini