The financial statements of Ma'aden for Q2 2017 unveiled a significant improvement in the company's performance with the net profit leaping 108% hitting SAR 356 million compared to SAR 171 million in Q2 2016. The bottom line surged 29% QoQ as well, therefore the conglomerate posted a semiannual net profit of SAR 632 million in H1 2017 up 73% from SAR 366 million in H1 2016. The second-quarter figure also surpassed our forecast of SAR 340 million, while analysts on average expected net profit of SAR 341 million.

Ma'aden attributed the YoY improvement in the second-quarter profits to the increase in sales by 17% buoyed by increased sales volume of gold, ammonia and phosphate fertilizers. Furthermore, the average realized price of aluminum and phosphate fertilizers leapt 24% and 7% YoY, respectively. It is noteworthy that Ma'aden launched commercial operations in the ammonia plant of Waad El Shamal project at the onset of 2017. The plant sold 282k tons of ammonia in Q2 2017. On the other hand, exploration and technical services expenses jumped by 27%, while general and administrative expenses ended up 12%. The financing expenses also widened by 59% boosted by the increase in LIBOR and SIBOR. In addition, the interest expenses of the recently launched expansions were added to the income statement rather than interest capitalization.

In H1 2017, the consolidated sales edged up 18% to SAR 5,712 million boosted by increased quantities of ammonia, gold and phosphates. The average price of DAP climbed by about 2% and aluminum by 19% compared to H1 2016, nevertheless the average price of ammonia plummeted by 21%. Financing expenses skyrocketed by 89% compared to the first half of 2016.

In Q2 2017, the demand for phosphate fertilizers in India, one of the main mar kets, slumped due to a new tax scheme. The demand remained flat in Latin America coupled with excess production in China. The expansion in the production capacities in Saudi Arabia and Morocco will most likely weigh on fertilizer prices in H2 2017. In the aluminum sector, the improvement in selling prices was fuelled by new environmental policies in China that resulted in a reduction in production levels. On the other hand, the average price of gold in Q2 2017 approximated Q2 2016 levels. As for copper, the price nudged up 24% on disruptions in the production of the three largest producing mines in the world.

Ma’aden launched commercial operation of the ammonia plant of Waad al Shamal project on January 1, 2017 and also commenced production in the di ammonium phosphate plant on July 8, 2017. Accordingly, all main expansions of the company are now in commercial production phase, which will be posi tively reflected on the income statement going forward. In parallel, Maaden will report higher depreciation charges and interest expenses in H2 2017. Factoring in the results of the second quarter, and the launch of operations in the new DAP plant, we raise our valuation from SAR 44 to SAR 47 per share.

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