Qatalum’s high margins to drive Qamco’s growth, says QNBFS

QATALUM’S high margins, low indebtedness and lack of major expansion projects on the horizon warrant the continuation of its strong cash generation as well as attractive dividend yields for Qatar Aluminium Manufacturing Company (Qamco) shareholders once the global aluminium market stabilises, QN Financial Services (QN FS) has said in its latest company report.

“Qatalum currently operates above its nameplate capacity, hence its top-and-bottom-lines are more sensitive to the changes in aluminium prices against its peers. Coronavirus disruptions pushed aluminium prices to the bottom of their last 5-yearcycle by April . Nevertheless, as a result of strong demand from China, coupled with the end of global lockdowns in June, primary aluminium prices have been recovering since then, rising 46. percent from their April bottom,” the report said.

“We maintain our market perform rating and our target price at QR0.9 per share. Thanks to its state-of-the-art plant and the support of its major shareholders, which enables Qatalum to act as an integrated producer. Qatalum is one of the world’s lowest-cost smelters,” the report said.

Qamco reported a net profit of QR 2.4mn in the fourth quarter of 2020 as compared to a net profit of QR19.5 million in the same quarter of 2019. The result is higher than our QR49.2 million net income estimate. Gain from ‘share of results from a joint venture (Qatalum)’ stood at QR .7 million in the fourth quarter of 2020 as compared to a gain of QR1 . million in the same quarter of the previous year.

Qamco’s 50 percent JV Qatalum’s revenue in the fourth quarter of 2020 fell 2 percent YoY but up 22.2 percent QoQ. Qatalum recorded QR1.1 billion in the fourth quarter of 2020 revenue, down 2 percent YoY and up 22.2 percent QOQ.

“While the deviation from our revenue estimate of QR1.1 billion was a mere 4.4 percent, it has fed all the way down the P L and resulted in the bottom line variation against our estimates. Qatalum’s sales volumes in the fourth quarter of 2020 rose sequentially by 4 percent to 162k tonnes from 156k tonnes in the third quarter of 2020.

“A 1 percent QoQ increase in average LME aluminium prices as a result of better global market conditions was also accompanied by higher average premiums resulting in a 16 percent sequential rise in Qatalum’s average selling prices during the fourth quarter. The demand for value-added products has started to pick up in the fourth quarter, enabling Qatalum to adjust its product mix accordingly and enjoy higher premiums and better margins during the quarter,” the report said.