Kardemir (KRDMD TI) - 4Q18 NI misses due to one-off: Maintain Buy
Kardemir released NI of TRY328m in 4Q18, lower than our estimate of TRY453m and the RT consensus estimate of TRY452m. The divergence stemmed mainly from one-off tax expenses. Despite higher than expected effective tax rate, the bottom-line was boosted by FX income on TRY appreciation. 4Q18 EBITDA of TRY399m was 11% lower than our estimate of TRY447m but in-line with the RT consensus of TRY398m. We see that slightly weaker operating profitability came from less-profitable product mix compared to our estimates. As for profitability, EBITDA/ton was at USD128/t in 4Q18 (vs. our estimate of USD135/t) vs USD199/ton in 4Q17.
Despite challenging near term macro, we reiterate our BUY call on Kardemir as it offers exposure to a promising re-rating story on better cash generation capability via better product mix and volume growth. Separately, the company decided to pay gross dividend of TRY0.263/share, to be paid in two equal instalments. The proposed dividend implies a 10% yield. This may provide a cushion in the short 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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