MEPCO’s Q4 2018 profit misses estimates on revenue drop: SICO

Middle East Paper Co.’s (MEPCO) Q4 2018 net profit of SAR 12 million fell short of SICO Bank’s forecast of SAR 28 million by 56 percent.

“The weakness was on account of a 15 percent year-on-year (YoY)/19 percent quarter-on-quarter (QoQ) drop in topline - SAR 45 million - which was also 19 percent lower than our estimate. While MEPCO has not disclosed volumes, the drop in sales appears to factor in 15-20 percent price compression QoQ, based on our calculations,” the investment bank said in an earnings note.

The extent of pricing pressure is surprising, taking into account that there is usually a three-month lag between international pricing trends (which have been weak) and those of MEPCO.

The company announced a dividend of SAR 0.5/share for H2 2018. Cumulative cash dividend at SAR 1 share, higher than SAR 0.75 share paid last year.

SICO cut its expectations for revenue by 14 percent to SAR 781 million, and earnings before interest, tax, depreciation and amortization (EBITDA) by 24 percent to SAR 183 million for fiscal year 2019.

Projections for earnings per share (EPS) were also lowered to SAR 1.5/share in FY19 from SAR 2.3 per share.

Downside risk to pricing remains high in fiscal year 2019, including slowing global growth/trade, as well as significant capacity additions in Europe, which are expected to hit the market through 2019/20 impacting utilization rates.

The stock’s target price was cut to SAR 18 from SAR 27, the Bahrain-based bank said, adding that it downgraded its recommendation on MEPCO to “Sell” from “Buy”.