Kety is to publish 1Q06 results tomorrow (27 April), before the session, followed by an analysts’ conference at noon. Kety already provided a preview of 1Q06 results on 21 March, estimating 1Q06 sales at PLN 215m, EBIT at PLN 9-10m and net profit at PLN 9m. The results were depressed by the write off of assets that were damaged during the fire. EBIT and net profit adjusted for this write off are estimated by the management at PLN 17-18m and PLN 16m respectively. Our estimates are in line with management guidance.
Sales for 1Q06 are expected to come in at PLN 218m, up 30% y/y, mainly due to the strong sales of extruded products and aluminium systems divisions boosted additionally by consolidation of Aluprof since 1 February. Excluding impact of Aluprof, sales for 1Q06 are estimated to grow some 22% y/y. Despite fire damages, Kety managed to keep flexible packaging division sales flat year-on-year mainly due to outsourcing part of the production. Extruded products division sales should grow 40% y/y as a consequence of high market demand from both domestic and foreign clients. This growth incorporates some 5% increase of prices introduced at the beginning of the year. Aluminium systems division sales are expected to increase by 70% y/y and some 22% y/y should we exclude Aluprof.
EBIT for 1Q06 is expected to come in at PLN 10m, down 49% y/y. EBIT margin for 1Q06 adjusted for damaged assets write off is estimated at some 8.3%, down from 11.8% in 1Q05, due to outsourcing of part of flexible packaging production and unfavorable macroeconomic conditions, including adverse moves in currencies and soaring aluminium prices. The company estimates the value of EBIT loss caused by production outsourcing at PLN 5m. If we adjust EBIT additionally by that amount, the implied EBIT margin of 10.6% is still lower than 11.8% recorded in 1Q05 and lower than our full year EBIT margin forecast of 11.4%.
Net profit for 1Q06 is expected to come in at PLN 9.5m, down 45% y/y. Net profit adjusted for the assets write off should come in at PLN 16.5m, down just 5% y/y. However, the adjusted net margin is expected to deteriorate to 7.6% from 10.5% a year before.
Although sales for 1Q06 look encouraging they, are not expected to translate into good operating margins even when adjusted for assets write off and lost benefits due to outsourcing. We believe that continued soaring aluminium prices (20% up year-to-date) and strong PLN vis-a-vis EUR will further hurt Kety’s profitability. We believe that the release of 1Q06 figures, due to the earlier announcement of the preview, should have a neutral trading impact. We reiterate our Sell rating for Kety with a fair value estimated of PLN 116.8 per share.