Kardemir (KRDMD TI) - Operationally in-line: Maintain Hold
Operationally in-line
As we expect weaker long steel demand impacted by the Covid-19 pandemic and update our macro forecasts, we maintain our HOLD rating on Kardemir, with nominal revision to our 12M TP of TRY2.71 (+8% upside potential).Even though fall in coking coal price could result in better profitability outlook for Kardemir in the short term, we expect cash generation to remain muted, owing to stagnant steel demand outlook.
Kardemir reported net loss of TRY162m in 1Q20, better than our loss estimate of TRY219m and Research Turkey consensus loss estimate of TRY201m. The deviation at the bottom-line emanated from TRY46m deferred tax gain. Operationally, 1Q20 EBITDA of TRY133m came in-line with our estimate of TRY123m and RT consensus of TRY122m. As for profitability, EBITDA/tonne of USD38/tonne in 1Q20 met our estimate of USD36/tonne (vs USD24/tonne in 4Q19). Despite the decline in steel prices, Kardemir posted moderate operational recovery on q-q basis, driven by lower raw material costs.
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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