Revenue: SAR3.8bn, +17% Y-o-Y, +12% Q-o-Q, -7% vs. EFGe
Gross Profit: SAR1.1bn, -5% Y-o-Y, -13% Q-o-Q, -22% vs. EFGe
EBIT: SAR768mn, -8% Y-o-Y, -21% Q-o-Q, -28% vs. EFGe
Net income: SAR277mn, vs SAR105mn loss in 4Q17, -33% Q-o-Q, -37% vs. EFGe
 
Maaden reported its 4Q18 results with earnings falling 33% Q-o-Q to SAR277mn, missing our forecasts by 37% and Bloomberg consensus forecasts by 23%. Recurring earnings were even lower at SAR231mn, as earnings were boosted by SAR46mn in one-offs  (a positive reversal of SAR346mn at the SAMAPCO investment - which had been previously fully written down - net of an impairment of SAR281mn at the rolling mill and cSAR19mn in other impairments). 
 
According to the earnings release, the decline in earnings Q-o-Q was driven by: i) higher raw material costs and operating expenses and ii) weaker prices (gold prices were flattish Q-o-Q, DAP prices were slightly lower while aluminium prices saw a c5% decline). The release did not elaborate on what drove the higher raw material costs (we have contacted the company and are awaiting a response) but it could be related to higher gas prices in the phosphate operation as MPC’s grace period was set to expire this year (although our internal estimates assumed this started from 3Q18) or power costs at the aluminium division as the company had mentioned previously that power costs would increase down the line, without guiding for an exact date. The higher operating expenses were likely related to the new facilities (see below). 
 
Revenues jumped 12% Q-o-Q on the commercial start-up of the new DAP plant (3mtpa) and aluminium rolling milling (380ktpa) at the start of December, but gross margins plummeted to 29% (from 37% in 3Q18 and vs EFGe of 35%), as the increased costs associated with the DAP and rolling mill appear to have taken a toll, particularly if both facilities were not operating close to full rates as the sales numbers suggest (DAP sales increased by c130kt Q-o-Q, while at full rates, the new plant could’ve potentially added c250kt in its first month of commercial operation, while the rolling mill sold only 20kt during the quarter vs a full production rate of c32kt). 
 
The miss versus our numbers came on the back of: i) lower-than-expected revenues as DAP and rolled product volumes came in below our expectation since we assumed higher rates at the new facilities and ii) lower-than-expected margins, which could be related to higher-than-expected costs at the new DAP and rolling mill facilities, as mentioned above. 
 
Overall, a disappointing quarter as the incorporation of the new facilities appears to have weighed heavily on margins. Furthermore, the company impaired the rolling mill facility once again, an indication that the outlook for the operation remains quite bleak. With that said, we will be watching 1Q19 results closely to see if margins begin to improve as operating rates at the DAP and rolling mill facility continue to ramp up or if the much weaker margin level is likely to be an ongoing theme in 2019. We have a Neutral rating on Maaden, although the stock has rallied quite a bit YTD and is now trading well above our TP (SAR47). (Yousef Husseini, company)
 
Maaden: SAR55.00 as of 24 Jan. 2019, Rating: Neutral, TP: SAR47.00/share, MCap: USD17,138mn, MAADEN AB/1211.SE