Topline expands on strong price escalation, despite volume slump
SKPC reported 2Q21 sales of EGP 1,360 million (+4% QoQ, +89% YoY). Despite a 7% QoQ decrease in core volumes sold (Ethylene, PE), the company managed to boost its topline sequentially owing to strong pricing which in turn continues to be driven by the ongoing commodity rally. Company disclosures indicated an average selling price for ethylene at EGP 15,781/ton (USD1,141/ton) (+6%QoQ), an average selling price for PE sold locally at EGP 28,711 (USD 1,829/ton) (+27%QoQ), and an average selling prices for exports PE at EGP 25,218 (USD 1,607/ton) (+9%QoQ).
Gross profit for the quarter came in at EGP 285 million, implying a GPM of 21.0%, versus 1Q21’s GP of EGP 282 million with a GPM of 21.5% and 2Q20’s gross loss of EGP 33 million. The minor 0.5pps sequential decline shows that gas pricing formula has been moving costs in tandem with prices, while reflecting margins within the 20% average.
SKPC managed to broadly stabilize its ethylene utilization rate from 1Q21’s 78% to 79% during 2Q21 and PE utilization rates also saw a slight rise in 2Q21 to 85% versus 1Q21’s 84%.
Profitability hit by SG&A hikes
2Q21 EBITDA recorded EGP 194 million, implying an EBITDA margin of 14.2%, versus 1Q21’s figure of EGP 219 million and its margin of 16.7%. The shrinkage in the margin can be primarily attributed to an increase in SG&A spending levels as it recorded 8% of sales during 2Q21, versus 1Q21’s 6%.
Pressure on EBITDA filtered down to SKPC’s bottom-line as it recorded EGP 131 million implying an NPM 9.6%, versus 1Q21’s figure of EGP 152 million and its NPM of 11.6%.
Price is key, outlook cautiously positive on PE market dynamics
2Q21 financial trends confirm the following:
The gas cost formula is moving in tandem with the change in prices to guarantee SKPC GPM around 20%, which is close to our calculations that give c.19%.
At current gas availability, a utilization rate of 80% of Ethylene and 85% of PE seems sustainable. The upside would be gas importation and reaching a utilization of 100%.
PE market dynamics remain favorable for SKPC as PE supply in key regions such as China and U.S remains tight.
SKPC is trading at 2021e P/E of 12.2x and EV/EBITDA of 8.2x and 2022 P/E of 8.4x and EV/EBITDA of 6.5x.