Aslak’s Q3 profit beat estimates by large margin, says Riyad Cap

United Wire Factories Co.’s (Aslak) third-quarter net profit of SAR 7.2 million beat Riyad Capital’s estimates “by large margin,” the brokerage firm said in an earnings review.

The firm had forecast Q3 earnings of SAR 1.1 million. Earnings per share (EPS) came in at SAR 0.16, much ahead of Riyad Capital’s estimate of SAR 0.02.

“Unlike a bearish trend in Q2 2017, Aslak managed to surpass expectations with a large control on costs, believed to be on better utilization amid a cost savings on fall in local metal prices in this quarter,” the brokerage said.

Factors behind the improved earnings are likely to include softened metal prices, which came below SAR 2,100/ton in Q3 from highs of SAR 2,400/ton in the first quarter this year, the report said.

Other factors could be: control on costs, with COGS at 85 percent marking the lowest over the last two to three quarters; stable revenue levels in the third quarter; and impact of cheaper inventory, aiding low cost markup expanding margins.

Aslak’s revenue of SAR 130 million also surpassed Riyad Capital’s estimates of SAR 121 million.

“We believe Aslak has managed to improve its volume sales despite a falling prices and weakening demand. The slight fall in steel prices is expected to have not affected end-product prices, the reason for some stability in revenues,” the brokerage said.

Riyad Capital maintained “sell” on the stock, with a target price of SAR 17. It also held its estimates on Aslak for 2017 to 2019.

“Albeit a comeback quarter, we remain negative on long-term business outlook as industry weakness and earnings volatility persist. We wait for another few quarters of earnings consistency for any rerating,” the firm said.