Earnings Report /
Saudi Arabia

Yansab: High operating rates offset by high production cost

  • Revenues increased 14.4% yoy (+2.6% qoq) to SAR1.97bn

  • Gross profit came in at SAR429mn, declining by 19.3% yoy (-15.4% qoq)

  • EBIT stood at SAR296mn, down 28.4% yoy (-22.5% qoq)

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Vice President, Senior Equity Research Analyst

SNB Capital
18 April 2022
Published by

Yansab reported a weaker than expected set of Q1 22 results, with a net income of SAR283mn, down by 32.7% yoy (-15.5% qoq). This is significantly lower than the SNB Capital and consensus estimates of SAR342mn and SAR338mn, respectively. We believe the lower than expected results are attributed to higher feedstock, production costs and opex which mitigated the positive impact of higher operating rates.

  • Revenues increased 14.4% yoy (+2.6% qoq) to SAR1.97bn, largely in-line with our estimates of SAR1.93bn. The yoy and qoq growth is mainly due to higher production volumes. Based on our estimates, we believe that Yansab operating rates stood at 97.6% compared to our estimates of 96.3% and 2021 levels of 88.7%.

  • Gross profit came in at SAR429mn, declining by 19.3% yoy (-15.4% qoq) and is significantly lower than our estimates of SAR513mn. COGS stood at SAR1.54bn, the highest level since Q3 14. Gross margin stood at 21.8%, lower than our estimates of 26.5% and Q4 21 levels of 26.4%. We believe this is due to 1) higher feedstock cost, 2) an increase in logistics cost and/or 3) operational challenges.

  • EBIT stood at SAR296mn, down 28.4% yoy (-22.5% qoq) lower than our estimates of SAR386mn. Opex came in at SAR133mn, compared to our estimates of SAR127mn and Q4 21 costs of SAR125mn.

  • In Q2 21, HDPE prices grew 10.9% yoy (flat qoq) to US$1,190, while PP prices increased 1.2% yoy (-2.4% qoq) to US$1,195. MEG prices increased 5.4% yoy (-14.4% qoq) to US$751. PP-propane spread decreased 30.7% yoy (-4.2% qoq) to US$425.

  • As a read-across for the sector and following to Advanced’s results, we expect the profitability of the Saudi petrochemical companies to be under pressure in Q1 22 and below expectations due to higher feedstock prices and an increase in logistics costs.

Outlook

Based on our latest update, we are Neutral on Yansab with a PT of SAR76.5. Despite the disappointing Q1 22, a debt free balance sheet, high cash levels and an attractive dividend yield of 5.4% are the stock’s key advantages. As a read-across for the sector and following to Advanced’s results, we expect the profitability of the Saudi petrochemical companies to be under pressure in Q1 22 due to higher feedstock prices and logistics costs. Yansab is trading at 2022 P/E of 21.8x in-line with its local peer group average.