Earnings Review / Kardemir (KRDMD TI) - Keep calm and move on: Maintain Buy
Kardemir released net income of TRY48m in 3Q18, broadly in-line with our estimate of TRY36m but much better than RT consensus estimate for TRY27m loss. Despite higher-than-expected financial expenses, the bottom-line was boosted by better operating profitability and deferred tax gain of TRY90m (vs. our estimate of TRY80m) in 3Q18. 3Q18 EBITDA of TRY532m came higher than our estimate of TRY427m and RT consensus of TRY449m. Higher-than-expected operating profitability stemmed from lower production costs on one-off gain from its scrap procurement. EBITDA/ton was at USD188/t in 3Q18 (vs. our estimate of USD158/t) from USD90/ton in 3Q17. Despite challenging macro, Kardemir recorded its l best operational performance on record in TRY terms, backed by solid steel making margins and TRY weaknesses.
We revise down our 12M TP by 21% to TRY4.67 for Kardemir (D), based on discouraging long steel outlook and updated macro forecasts. Despite lack of catalyst as we expect cash generation to weaken in the near term, we believe that Kardemir still deserves a BUY call on attractive upside potential, backed by better product mix and competitive cost base in the long run.
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.
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