Strategy Note /
Global

East Pipes: Earnings call summary – FY 22

  • The company reported a net loss of SAR3mn in FY 22 vs a profit of SAR148mn in FY 21 due to lower volume and margins

  • East Pipes has strong projects pipeline. It secured projects ofSAR945mn, scheduled for production and delivery in FY 23

  • Strong order visibility for the next few years with announced projects of SAR10bn-cSAR6bn from water & cSAR4bn from O&G

Walid Khalid Bamhair
Walid Khalid Bamhair

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SNB Capital
9 June 2022
Published bySNB Capital

Financial performance

  • Revenue decreased 36% yoy to SAR597mn in FY 22, mainly due to temporary postponement of projects resulting from COVID-19 and supply chain disruptions.

  • Gross profit decreased 85% yoy to SAR35mn while gross margins contracted significantly to 6% in FY 22 from 25% in FY 21. The decline in gross profits and margins is the result of a significant rise in raw material prices and an increase in shipping costs, in addition to lower sales volumes.

  • EBITDA decreased 84% yoy to SAR39mn while EBITDA margin dropped to 7% in FY 22 from 26% in FY 21. The drop in EBITDA and margins is mainly due to increased cost of sales and SG&A expenses.

  • SG&A expense increased 31% yoy to SAR24mn driven by staff costs and the company’s efforts to meet the Saudization requirements.

  • Net financial costs decreased 48% yoy to SAR17mn, due to successful refinancing of credit facilities with improved terms.

  • The company reported a net loss of SAR3mn in FY 22 vs a net profit of SAR148mn in FY 21. The net loss in FY 22 was mainly driven by lower volume and margin pressure.

  • Total borrowings increased 82% yoy to SAR293mn in FY 22 from SAR161mn in FY 21, mainly driven by short-term borrowings to finance working capital requirements.

  • At the end of FY 22, net debt to equity ratio stood at 0.39x vs 0.18x in FY 21.

Operational performance

  • Sales volume declined by 25% yoy to 190,250 metric tons in FY 21, vs 253,920 metric tons in FY 21. The decline was mainly due to temporary COVID-19 related project delays.

  • East Pipes expanded its market share from 27% in 2018 to more than 50%.

  • The company has strong projects pipeline. It secured projects worth SAR945mn, scheduled for production and delivery in FY 2023.

  • The order book includes the previously announced two contracts with SWCC and expects better margins profile on these projects.

  • The company still has spare capacity to bid for new projects going forward.

  • The management believes the announced water and oil & gas projects (exceeding 2.2mn tonnes of pipes demand) will drive the company’s order book for the next 2-3 years.

  • The company has a strong order visibility for the next few years with announced projects worth more than SAR10bn (of which cSAR6bn from water projects and cSAR4bn are from oil & gas projects) up to 2025.

Outlook

  • The management believes that the secured orders and strong pipeline will drive the financial performance in the coming year.

  • With improved volumes and better material prices, gross margins will expand in the near term.

  • The company will focus on cost control, and effective working capital management to balance increases in finance costs due to higher interest rates.

  • HSAW pipes demand is expected to continue rising over the next few years with national initiatives, including Vision 2030 and privatization programs.

  • Saudi’s HSAW pipes demand is projected to reach 5.0mn tons during 2020-24f, up from 4.3mn tons of 2015-29, with majority of the demand is expected to come from water projects.

  • The management is targeting to capture up to 60% of market share in the water sector, and 25-30% share in the oil & gas sector.