Kardemir (KRDMD TI) - 1Q19 boosted by deferred tax gains: Maintain Buy
Kardemir’s 1Q19 net income of TRY68m was better than our loss estimate of TRY65m and the RT consensus loss estimate of TRY28m due mainly to a deferred tax gain of TRY99m and dividend income of TRY30m. Operationally, 1Q19 EBITDA of TRY203m came in-line with our estimate of TRY200m but 9% higher than the RT consensus of TRY187m. EBITDA/ton of USD61 was perfectly in-line with BNPPe of USD61 (vs USD164 in 1Q19). Despite challenging macros and weaker steel making margins, Kardemir kept its solid sales volume growth in 1Q19, backed by its competitive cost structure vs competitors using electric arc furnaces.
We cut our 12M TP by 9% to TRY2.84 for Kardemir (D), based on a discouraging long steel outlook and updated macro forecasts. Despite lack of positive catalysts and our expectation for weaker cash generation near-term, we believe that Kardemir still deserves a BUY on attractive upside potential relative to our new TP as well as its better product mix and competitive cost base long-term.
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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