Kardemir (KRDMD TI) - Headwinds to persist: Maintain Hold
Kardemir’s 3Q19 net income of TRY39m beat our estimate of TRY26m on lower financial expenses but it missed the Research Turkey consensus estimate of TRY45m. EBITDA of TRY124m came in-line with our estimate and RT consensus of TRY120m. EBITDA/tonne of USD45 came in-line with our estimate of USD43 (vs USD188 in 3Q18). Coupled with weaker steel making margins on weaker steel prices, a stagnant sales volume drove a discouraging performance in 3Q19.
We cut our 2019 forecasts for EBITDA by 23% and for net income by 25% on lower steel prices. Based on lower steel prices and weaknesses in long steel demand, we believe that profitability will remain under pressure in the near term. We expect steel pricing to remain depressed at least for the next two quarters. Our lower earnings estimates lead to a c19% lower DCF based TP of TRY1.9. Maintain HOLD.
Kardemir Karabuk Demir Celik Sanayi ve Ticaret manufactures and sells raw iron and steel products and coke and coke side products. KARABUK Co.'s products include: Steel Products - Blooms, Billets and Beam Blank; Rolling Mill Products - Hot Rolled Round Steel (Bars), Hot Rolled Round Steel (Deformed Bars), Steel Nip Beams, Steel Npu Profiles, Equal Angles, GI Profile, Rails and Billets; Coke Products - Coke Plant Products, Ammonium Sulphate, Pressed Naphthalane, Tar Paint, Carbolic Oil, Grude Benzole, Refine Washed Oil and Crude Tar and Other Products - Pig Irons, Granule Slag, Oxygen, Nitrogen, Argon.
TEB Investment equity research analysts and strategist team consists of 8 analysts with an average finance sector experience of 15 years and special focus on international investors.
With our 6 equity research analysts we cover 93 companies across 21 sectors, reflecting 80% of the total market capitalization of all BIST companies and 86% of the BIST100 companies. Our strategy team provides in depth top-down and bottom-up market views with insight on FX and bond markets by publishing sectoral and strategic reports both in English and Turkish.
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