Reiterate Hold
After recovering in 2Q24, global aluminum prices are trading at a higher-level YoY, which we expect to positively impact QAMCO’s JV Qatalum. However, we note that QAMCO’s business prospects are highly correlated with aluminum price movements, as over 100% capacity utilization with no capacity expansion in sight limits volume growth. This is a concern, in our view, since the current aluminum price rally is partly due to a supply crunch of a key raw material, and not entirely demand-driven.
Hence, we maintain our Hold rating and QAR 1.35 per share target price on the company.
Top-line growth is expected to accelerate next year
QAMCO’s JV’s top line is estimated to rebound in FY24 driven by better performance in 2H24 with a recovery in aluminum price. Considering the mid-to-high single-digit growth projection in the price of the silvery metal in FY25, we estimate revenue growth to accelerate with improved sales realization and steady sales volume.
JV income’s share to benefit from higher revenue
Backed by revenue growth, better margins, and a decrease in finance cost (in FY25e) due to a reduction in debt, we expect QAMCO to record a healthy growth rate in its share of JV income in FY24 & FY25.