DOHA: Industries Qatar’s (IQ) net income for 2015 is forecast for a further fall. IQ’s net income was down from QR8.7bn in 2012/2013 to QR6.3bn in 2014 and we forecast a further fall in 2015, Investment Bank SICO noted in its company update yesterday.
According to SICO’s research note, IQ reported poor 1Q15 numbers with net income of QR951m, which is lowest quarterly income in the past six years.“We believe earnings to be at trough currently but do not see a significant recovery in the near,” SICO analysts said in a statement sent to The Peninsula.
The earnings are impacted by price weakness across all segments: Fertilisers, petrochemicals and steel. Profitability in fertiliser and steel segment should remain under pressure due to lower urea and steel prices, respectively. Petrochemical segment is unlikely to benefit in low oil regime as IQ’s feedstock is gas based implying no relief from lower oil prices. The investment case for IQ in 2015-16 will be driven by price recovery across all segments like steel, fertilizers and petrochemicals. “We see sequential earnings improvement only in petrochemical segment on stronger PE prices”.
The SICO analysts said that the absence of any catalysts makes them “Neutral” on IQ’s stock in near term, in addition, the lack of structural events, like MSCI inclusion, could take out a major impetus that the stock enjoyed in 2014. “We reduce our 2015/16 earnings estimates by 18.7 percent/7.2 percent, mainly due to 1Q15 miss and lower urea price assumption.”
Weak urea price trend during 2Q15 augurs negatively for the stock price. Urea prices, although recovered from April 2015 lows of $250/tonne, still remains relatively weak — 2015 year-to-date average at $287/tonne compared to 2014 average of $317/tonne and 2013 average of $341/tonne.
