Maaden - 2Q17 results review and conference call highlights
Rating: Neutral
Target Price: SAR30.0
Closing Price: SAR47.8
Financial highlights: Strong price improvements main factor behind earnings boost
- Earnings boosted by higher prices across all products, with Y-o-Y growth also attributable to the start-up of the Waad Al Shamaal (WAS) ammonia plant (ammonia volumes +155%).
- Cash costs fell Y-o-Y across all products.
Commodity markets: Generally positive, but ammonia decline will have a major impact
- Gold, aluminum and copper all seeing positive trends, but fertilisers a different story.
- Ammonia, which was a major driver in the YTD earnings surge (+73% Y-o-Y) has plunged c50% from its peak. We believe that at current price levels, operational earnings are at risk of falling by c20% sequentially in 3Q17. Higher caustic and coke prices are a further downside. DAP markets are on a weakening trend, and management have some concerns on 2H17 prices given supply additions from Morocco and as China has come off its peak season.
Balance sheet update: Debt levels decline for the first time
- Debt levels peaked at SAR54bn last quarter and dropped to SAR53bn in 2Q17; with WAS now fully funded, management don’t foresee further debt expansion unless they decide to move forward with a new project.
- SAIBOR rates have softened relieving finance costs (-3% Q-o-Q); expect more of the impact to materialise in 2H18.
- No growth capex in pipeline beyond WAS (last capex 2017). New projects remain under study – third phosphate project, Mansourah and Masarrah gold mines.
Other tidbits: VAT could impact costs, mgmt. constructive on DAP in the long term
- VAT impact on sales limited given bulk of production exported (c90%); costs could see an impact from imported raw materials
- Mgmt constructive on DAP markets in LT on higher rock prices and healthy demand growth. We believe that DAP is likely to remain under pressure for the foreseeable future due to JPH-3 (new Moroccan project) & WAS ramp up.
Omar El Gharabawi