MA'ADEN's Q2 net profit dropped 51% year-on-year to SR132 million, below Al Rajhi Capital's estimate of SR196 million and consensus estimate of SR157 million, on the back of continuing unfavorable pricing environment for its products. However, lower product prices were negated by higher sales volume, which led to revenue coming in-line with our estimates (SR2.54 billion, down 15.5% y-o-y; our estimate of SR2.55 billion). The company is implementing cost reduction initiatives to sustain margins in a challenging environment and has been able to reduce its operating expenses and cushion the margin decline. Al Rajhi Capital forecast gold and aluminum volumes will increase led by production ramp up of new facilities. Moreover, the modest recovery in commodity prices should also support Ma'aden's profitability in Q3 2016. "We will revise our estimates and rating on the company post a discussion with the management. Ma'aden's stock price jumped 28% since last report in April. "Hence, we revise our rating to Neutral (from Overweight earlier) and maintain our target price of SR35 per share." Ma'aden's Q2 revenue declined 15.5% y-o-y to SR2.54 billion, in line with Al Rajhi Capital's estimate of SR2.55 billion, but lower than consensus estimate of SR2.58 billion. The revenue decline is attributable to lower pricing of ammonia (-9%), ammonium phosphate fertilizer (-31%) and aluminum (-16%). However, this was partially offset by increase in gold prices (+7% y-o-y) as well as higher sales volume of gold and aluminum. The company's gross profit shrank to SR540 million (-29.4% y-o-y), below estimate of SR616 million. The operating profit also dropped 31% y-o-y to SR326 million, attributable to decline in gross profit and lower than expected decrease in SG&A expenses. However, the company continues to work on its cost reduction initiatives to improve its margins. Ma'aden's net profit was down by 51% y-o-y to SR132 million. The net profit had a favorable impact from the increase in income from short term investments (+319% y-o-y) and lower losses from Ma'aden's jointly controlled entity SAMPCO (-27% y-o-y). However, the net profit was negatively impacted by increase in finance cost (+80% y-o-y, partly led by rise in SAIBOR rates), provision for Zakat (+34% y-o-y) and decline in other income (-91% y-o
