Company reports major decline in profit amid slowdown
A puzzle in Arkan's heavy trading and rise
Arkan Building Materials was arguably the biggest winner in yesterday's trading but also its biggest mystery. The Abu Dhabi company reported a huge drop in profit and one analyst confirmed his "sell" rating on the stock. Investors responded by bidding up the shares more than 3 per cent to Dh1.27 on higher volumes than for almost four months.
"There is no change in the company's situation," said Hettish Kumar, a senior equity analyst who covers the cement and construction sector at Global Investment House in Kuwait. Mr Kumar called the activity "merely speculative". Arkan has suffered a decline in profit as the property market has struggled. It said yesterday its second-quarter net profit was Dh2.6 million, down from Dh57.1m in the same period last year.
The company said the drop was largely caused by a loss in its share portfolio and lower cement prices. Arkan stock is among the worst performers in the capital and has hit several lows this year. It is almost 70 per cent down from its 12-month peak and 6.7 per cent above its 52-week low of Dh1.19. Analysts say the outlook for the UAE's cement sector is not sunny either, with muted property demand, falling cement prices and sporadic power cuts in the Northern Emirates, where Arkan has some production operations.
"A recovery is not expected to start until the fourth quarter of this year," Mr Kumar said. Investors may have been banking on recovery coming sooner or were surprised the firm eked out a first-half profit in difficult conditions. Arkan earned Dh21.8m in the first half of this year compared with a loss of Dh34m in the same period last year. The quarterly results were "broadly in line with our estimate", analysts at Nomura said.
But Mr Kumar said Global Investment House was maintaining its "sell" recommendation on Arkan stocks until fundamental changes occurred in market and operating conditions. email@example.com