Bullish outlook on RAK Ceramics from EFG-Hermes

RAK Ceramics, one of world’s biggest makers of ceramic tiles and bathroom fixtures, is expected to grow its profit by 10 per cent a year through 2019.

The profit will be driven by a revenue increase of 7 per cent a year, planned expansion at the Ras Al Khaimah-based firm and improved margins, the Egyptian investment bank EFG-Hermes said.

The bank initiated coverage of RAK Ceramics with a “buy” rating, and a fair value of Dh4.30 per share. The shares closed up 0.9 per cent at Dh3.30 in Abu Dhabi.

EFG-Hermes noted its expectation of “optimisation in tile utilisation, capitalising on underlying demand from the UAE construction sector” ahead of Expo 2020, as well as improvements in Saudi Arabia’s construction sector.

RAK Ceramic’s first-quarter net profit after non-controlling interest deductions fell by 0.2 per cent to Dh57.9 million from Dh58m year on year. The company’s core revenue from ceramics sales declined 5.8 per cent year on year to Dh656m in the first quarter.

The Abu Dhabi-listed company’s core business includes the manufacture of ceramics tiles, bathroom ware and table ware, while non-core businesses includes contracting, property development and pharmaceuticals.

The firm has been divesting non-core assets to boost profitability and investing proceeds in capacity expansions.

During the first three months, the group completed the sale of its stake in the adhesives company Laticrete RAK, the mosquito-coil manufacturers RAK Mosfly Bangladesh and RAK Pharmaceuticals Bangladesh. It is expected to exit its Sudan subsidiary this quarter.

In the UAE, RAK Ceramics will boost its annual production of bathroom fixtures by 500,000 pieces from the current 2.7 million pieces in the second half of this year, its chief executive said in January.

The company will also expand annual production capacity for bathroom fixtures in India to 1.2 million pieces from 700,000 pieces now. Capacity for tile production in Bangladesh will be expanded by 21.2 per cent this year from the current 8 million sq metres.

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