Industries Qatar -Equity Report -09-08-2012

Solid 2Q2012 Results; Maintain Outperform

Strong revenue growth with in-line profitability; we maintain our rating and above consensus estimates. We base our bullish view on the company’s significant capacity expansion in 2012/13 (our May site visit and subsequent checks confirmed QAFCO 5/6 and LDPE 3 expansions are on track), strong FCF generation (average of QR9.8bn over 2012-2016), solid dividend yield (6.8% in 2013) and potential for future expansion. Macro risks remain but we remain optimistic.

Net income of QR2.1bn was slightly below our estimate of QR2.2bn but 1% ahead of consensus estimates. Net income increased 3% YoY and 12% QoQ. Gross and operating margins improved to 51.6% and 45.8% in 2Q2012 compared to 49.6% and 44.0% in 1Q2012, respectively. We suspect the slightly weaker-than-expected profitability was due to the increased contribution of lower margin steel revenue.