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Sidi Kerir Petrochemicals: 1Q21 – Commodity boom in full effect

  • Slight volume drop brushed by roaring selling prices
  • Strong sales drive margins recovery
  • Maintain Equalweight at EGP9.55/Share; TP revision ongoing

Slight volume drop brushed by roaring selling prices

SKPC released detailed financial statements for 1Q21, showing a sales figure of EGP1,310 million (+38%YoY, +25%QoQ). Despite a 15% drop in core volumes sold (Ethylene, Polyethylene) from 64,346 tons in 4Q20 to 54,548 tons, and a drop in PE utilization rates to 84% versus 4Q20’s 88%, SKPC sales were boosted by booming HDPE prices which managed to average USD1,238/ton (+47%YoY, +19%QoQ). These prices reflect on SKPC local and export selling prices, which averaged EGP22,657/ton versus EGP 16,533/ton in 4Q20 and EGP 23,240/ton versus EGP 14,809/ton in 4Q20, respectively.

Strong sales drive margins recovery

Gross profit for the quarter came in at EGP282 million (+1,107%YoY, +155%QoQ) implying a GPM of 21.5%. Healthy GP managed to filter down to EBITDA which recorded EGP 219 million, implying a margin of 16.7% and despite a heftier tax bill of EGP45 million, the company managed to book a net profit figure of EGP152 million, implying an NPM of 11.6%.

Maintain Equalweight at EGP9.55/Share; TP revision ongoing

The commodity boom compounded with tight supply in major PE hubs such as Asia (which witnessed tight import supply) and Europe (which saw during 1Q21 an extremely tight supply on increased exports and reduced output) which have driven local producers’ financial performance. 

In the medium term, SKPC stands to benefit from the current environment. But in the long-term however, the planned PE capacity additions in Asia and increased plastic-use conscious could hurt PE producers.

We maintain our equal-weight stance on SKPC at FV of EGP9.55/Share, pending revisions on the fronts of prices recovery and feedstock pricing. SKPC is trading at annualized 2021e P/E of 10.1x and EV/EBITDA of 6.8x.


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