Kardemir (KRDMD TI) - Discouraging profitability outlook: Downgrading to Hold
Kardemir’s 2Q19 NI of TRY103m was in-line with our estimate of TRY109m but beat the RT consensus of TRY72m on better operational performance due to better sales volume and a TRY6m deferred tax gain. Operationally, 2Q19 EBITDA of TRY244m was 8% above our estimate of TRY227m but roughly in-line with RT consensus of TRY235m. 2Q19 EBITDA/tonne of USD66/t was in-line with our estimate of USD68/t (vs. USD198/ton in 2Q18). Even though Kardemir kept its solid sales volume growth amid challenging macro-economic conditions, Kardemir’s profit outlook seems discouraging to us.
We cut our NI and EBITDA forecasts by 13/18% respectively for 2019 on lower steel making margin forecasts. Based on an unappealing upside potential, we downgrade our call to HOLD for Kardemir as we expect cash generation to remain weak in the near-term. Despite near term headwinds, we keep our constructive view on Kardemir in the long run backed by a better product mix and a competitive cost base.
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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