(ARKAN) Arkan Building Material discloses summary financial results for 3rd quarter, 2008
(ARKAN) Arkan Building Material discloses 3rd quarter, 2008 financial results
Arkan statements sent to the ADX have a 30 October 2008 datestamp on the fax. If that's correct then the ADX were very slow to release them to investors keen to be kept up to date. Arkan financial statements and BOD report were of poor legibility but summary figures checked with previous results and recalculated so should be correct. Arkan Building Materials (ARKAN) profit figures for third quarter 2008 are (EPS annualised in brackets):
EPS figures calculated from Net Profit / 1,750,000,000 shares outstanding.
ARKAN share price as of 02 Nov 2008 was 5.51 dhs, so 2008 estimated PE is about 5.51 / 0.08 = 68.9, based on Q3 earnings, which is close to 7 times the average market PE of about 10. 2008 PE estimate based on M9 earnings is 5.51 / 0.12 = 45.5, which makes shares look cheaper but still very expensive for what they are, and it doesn't look like Arkan will beat 2007 FY profits, or even match them, unless they have another quarter as good as Q2 2008 (when they made AED 111m). Profits increased steadily YoY from 2003 to 2007, and QoQ during 2007, but have been erratic during 2008 with Q1, Q2, and Q3 profits of AED 17.2m, AED 111m, and AED 30.7m respectively.
Even on a PBV basis (PBV of 4.7), Arkan shares look way overpriced. Market average for Q3 2008 is about 1.9. Except for RAK White Cement (RAKWCT) which also looks expensive this quarter, other UAE building material and cement companies that have released Q3 results, have PEs of around 10 or less. So what don't I know that explains why Arkan shares are so overpriced, even after the recent crash in the market ?
Arkan shares are up 1.45% to AED 5.59 in trading so far today, although volumes are low. ADX index is up 1.57%.
Now here's a report worth reading (if you can actually read it - Arkan appears to be sharing the same rubbish printer or fax machine as many other ADX listed companies). Oddly though, Arkan blame a fall in profits to poor performing investments, but then at the end say "There has been no impact on Arkan's operations from the current international financial crisis."
As for the third quarter figures, yes there was a loss of AED 18.1m from revaluation of investments, however, Operating Profit was down slightly also, and growth in Revenues and Gross Profit was less than 15% YoY. Q3 Revenue and Gross Profit was well down on corresponding figures for the second quarter this year - more likely because Arkan had a spectacular Q2.
There are some clues as to why Arkan shares might be so expensive - all the expansion and new factories will presumably bring in sufficient revenue and profit to mean investors are happy buying shares at current prices. There will have to be a big jump though. Assuming Q4 profits are similar to Q3 and 2008 FY profits are similar to 2007 FY (AED 208m), that would put Arkan on a PE of about 50 for the year. So for PE to be in line with market average of about 10 at current share price, Arkan needs to multiply their profits five-fold and earn AED 1 billion per year. Is there enough production capacity in all their new factories to do that?
Note I haven't included the summary table of results because it doesn't really add anything new, and it takes too long to format it for a forum post.
Arkan 29 October 2008:
Report of the Board of Directors
I am pleased to present the Condensed Consolidated interim financial statements of Arkan Building Materials Company PJSC for the nine months ending September 30th, 2008.
Highlights:
Despite the difficult business circumstances caused by the current global financial crisis, Arkan reported healthy results for the first nine months of the year. The Profit from Operations grew 76.6% as compared to the same period last year though for the third quarter it was 4.4% less than that of the same period last year. The Net Profit for the nine months was 10.6% better than last year but in the third quarter it was 46.4% less than the corresponding period last year. This was largely due to a loss on account of the fair vaulation of the investments held for trading.
The company's core businesses - cement and blocks - continued to perform well. Revenue for the nine month period increased 134% as compared to the same period last year facilitated by good demand, higher production and sales volumes and rising prices. Revenu for the third quarter was 7.3% better than for the same period in the previous year. The steel trading activity which contributed significantly to the second quarter revenues and profits was substantially reduced in the third quarter due to the significant reduction in steel prices.
Gross profit margin, tempered by steel trading activity, was 36.9% for the nine months which was lower than the margin of 49.4% achieved last year. However, Gross profit increased to AED 217.9 million translating to a growth of 74.6% from last year. Finance Income was lower than that for the same period last year due to lower interest rates on deposits as well as the utilization of the funds in the industrial projects of the company.
General and Administrative Expenses have increased 80.3% this year as compared to the same period last year. The increase is due to additional staff, marketing, administration, project consultancy and other expenses incurred for implementing Arkan's expansion plans.
[edit] Summary table omitted [/edit]
Operations:
The Emirates Cement Factory results have benefitted from improved volumes, higher cement prices and increasing market demand for cement in UAE. This demand is expected to continue. The construction of Arkan's new cement factory in Al Ain is proceeding well and is on track for completion in the last quarter of 2009.
The Blocks Factories have reaped the benefits of the installation of new equipment last year. The construction of the two new block factories is well underway. One of the factories should start commercial production in the second quarter and the other in the third quarter of next year.
Following the completion of the Master plan, work is proceeding for the installation of the infrastructure at the Arkan Industrial Park in Al Ain. A number of new wholly-owned and joint venture projects are in various stages of progress and should bear fruit in the next few years.
There has been no impact on Arkan's operations from the current international financial crisis. With adequate liquidity and a strong pipeline of new industrial projects, the company remains optimistic of the future.
On behalf of the Board of Directors:
Salem Bin Mohammad Al Dhaheri
Chairman of the Board
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