|10 March, 2019

Saudi Middle East Paper Company's Q4 earnings drop 50%, shares retreat

Mepco reports drop in Q4 2018 net profit, analyst revises 2019 earnings forecast lower

Saudi traders monitor stocks at a Saudi Bank in Dammam October 26, 2008.

Saudi traders monitor stocks at a Saudi Bank in Dammam October 26, 2008.

REUTERS/Stringer

Middle East Paper Company (Mepco) reported a drop in fourth quarter (Q4) earnings for the year 2018, missing analysts’ estimates and pushing its stock price downwards on Sunday.

Mepco’s Q4 2018 net profit amounted to 12.29 million Saudi riyals ($3.27 million), almost half of the 24.49 million riyals earned in Q4 2017, missing Saudi Fransi Capital’s estimate of 28 million riyals.

Asim Bukhtiar, head of capital markets research at Saudi Fransi Capital, said in a note published on Sunday that the bank had cut its 2019 earnings estimate for the company to 87 million riyals from 95 million riyals and cut its revenue forecast by 2.4 percent to 869 million riyals.

The company announced a net profit for the whole of 2018 of 99.4 million riyals, a 46 percent increase on the 68.1 million riyals net profit earned in 2017. Full-year revenues for 2018 increased by 8.1 percent to 833.6 million riyals, compared to 771 million riyals in 2017.

For Q4 revenues, “increased contribution from non-conventional product (36.3%) failed to offset weaker product prices and demand,” Bukhtiar said.

The company’s Q4 revenues amounted to 174.44 million riyals, down from 205.05 million riyals for the same quarter in 2017, translating into a 14.92 percent drop.

“In our view, flexibility to tweak exports will help offset weak domestic demand,” Bukhtiar added.

The company’s shares were trading 1.34 percent lower at 13:20 GST on Sunday, at 20.66 riyals. Despite today’s drop, Mepco's shares have gained 3.5 percent so far in 2019.

Saudi Fransi Capital’s Bukhtiar said that his target price for MEPCO has been cut to 24 riyals, from the previous rate of 29 riyals, but a 'Buy' recommendation has been maintained on the company’s stock.

“We note that our revised estimates include slowing revenues and tighter margins, however given the unpredictability of demand and product prices, the company could positively surprise,” Bukhtiar added.

Mepco’s board proposed a cash dividend of 0.5 riyals for the second half of 2018, better than the 0.25 riyals anticipated by Saudi Fransi Capital.

(Reporting by Gerard Aoun; Editing by Michael Fahy)

(gerard.aoun@refinitiv.com)

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