Overview of Q2 22 results
· In Q2 22, revenues came in at SAR3.19bn, up 35.1% yoy (+32.5% qoq).
· Sales volume stood at 1,025,000, up 5.5% yoy (+16.2% qoq) vs 972,000 in Q2 21 and 882,000 in Q1 22, driven by strong demand and reliability of Sipchem’s products.
· In Q2 22, sales volumes were impacted by the 3-week maintenance turnaround of IAC.
· Average selling price increased 13% qoq.
· Geographically in H1 22, the Indian Subcontinent contributed 26% of Sipchem’s sales, followed by Asia (25%), Europe (22%) and Saudi (20%). MEA and America contributed 7%, and < 1% respectively.
· In Q2 22, Sipchem increased its sales in Europe to capitalize on production issues and to realize better netbacks.
EBITDA and net income
· In Q2 22, EBITDA reached SAR1.59bn (+16% yoy, +16% qoq). EBITDA margin stood at 49.7% vs 56.5% in Q1 22 and 58.1% in Q2 21.
· EBIT came in at SAR1.37bn, up 20.1% yoy (+19.3% qoq).
· Share of profit from JV’s and associates came in at SAR148.7mn up 81% yoy (+29% qoq) vs SAR82.0mn in Q2 21and SAR115.7mn in Q1 22.
· Net income came in at SAR1.26bn, 52.2% yoy (+17.1% qoq).
Debt and liquidity
· Debt to equity declined to 0.26x as of June 2022 from 0.34x in December 2021.
· Sipchem has a strong cash balance of SAR2.8bn, with a current ratio of 1.9x.
· Cash flow from operations stood at SAR2.5bn in H1 22, up 22% yoy.
· Free cash flow decreased 37% yoy (-53% qoq) to SAR713mn in Q2 22. The decrease in attributable to 1)zakat and tax payment of SAR260mn, 2) additional investment in working capital and 3) increase feedstock prices.
· Annualized ROCE stood at 25.5% at the end of Q2 22.
Additional comments
· Sipchem achieved higher than expected synergies on the Sipchem-Sahara merger.
· In Q2 22, Sipchem plants exceeded production targets by 4%.
· Sipchem management continues to focus on marketing agility to maximize netbacks.
· The management affirmed the methanol plant capacity is at 1.3mn tonnes and 0.2mn tonnes is used internally.
· Tasnee is following up on the anti-dumping duty case related to SAPCO. Sipchem management is optimistic that the case outcome will be positive.
Outlook
· Higher feedstock and energy costs to continue in H2 22 driven by high oil prices.
· The management expects product prices in H2 22 to be similar to Q1 22 levels.
· Due to shortage of natural gas, the management expects c20% of European producers to curtail production in H2 22.
· The management expects stimulus packages in China to increase demand activity as lockdowns ease.
· The outlook in H2 is cautious due to market uncertainty.
· The management has not received any information on increasing feedstock prices. Sipchem said that it will continue to be competitive even if there is increase in feedstock costs.
· VAM weak prices is due to summer seasonality. VAM demand outlook remains good.
· BDO oversupply came mainly from China and led to a decline in prices. However, a rebound is expected soon.
· The Inochem plant is expected to start up in Q2 23, the management believe that the plant has a bright future driven by strong demand in the local market.
· MTO operations: if oil prices are high, MTO plants will run at good rate, thereby benefitting demand of methanol.
· The capex plans will be balanced between capex, dividend distribution and sustainability of operations.
· Debottleneck program:
o Construction to start at the end of Q1 23 for a period of 2 years without impacting the current operations.
o The project is expected to increase VAM, EVA, and PP capacity.
o The management expects margins to improve.
o More details will be provided later.
o In the past, Sipchem has undertaken major bottlenecking in its Methanol and BDO plants. The maintenance turnaround time was c1 month for these projects
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Sipchem is in the process of finalizing its sustainability targets which will be announced in Q4 22.
The company is currently at an advanced stage of its greenfield initiatives in coordination with Shareek program. Details will be announced once finalized.