Maaden’s Q1 beat estimates on higher prices, output: Aljazira Capital

Saudi Arabian Mining Co.’s (Maaden) net profit of SAR 638 million in Q1 exceeded the research estimate of Aljazira Capital and consensus estimates, Aljazira Capital said in a research note.

Aljazira Capital expected the company to post SAR352.4 million net earnings in Q1, while average estimates hovered around SAR 349.9 million.

“We believe that despite an increase in operating expenses and lower income from short-term investments, the positive contribution from commodity prices, jointly controlled entities, and higher production efficiency have supported (the company's) earnings in Q1 2018,” the firm said.

Sales in Q1 were 9.3 percent above expectation, due to higher than expected sale of gold from Ad-Duwahi mine, while gold price jumped by 7.4 percent YoY to an average USD 1,330 per ounce, the report said.

Maaden's gross margin expanded to its highest level since FY2013 standing at 39.6 percent from 34.2 percent in Q1 2017, as a result of higher products spreads and the positive impact of SAR 157 million in inventory changes.

“We believe that part of Q1 2018 gross margin is not sustainable during the next quarters,” the report said, adding “Despite the company’s ability to achieve higher control on production costs and the improved commodity prices; phosphate market oversupply, increase in finance charge and higher depreciation are likely to mitigate the desired benefits on the overall future performance.”

The company reported a gross profit of SAR 1,412.4 million exceeding.

Though the company is expected to register strong sales growth by the end of 2018 due to the full commencement of production at Wa’ad Al Shamal; financial charges, higher depreciation rates and mid-term weak outlook of phosphates prices are the key concerns for future outlook, the report added.

Aljazira Capital recommended a “Neutral” rating on the stock with a target price of SAR 55 per share.