Earnings Report /
Saudi Arabia

Saudi Electricity: Losses on higher than expected costs

  • Revenues stood at SAR15.02bn in Q4 21, down 25.4% yoy (-31.9% qoq)

  • Operating profit stood at SAR849mn in Q4 21, down 83.8% yoy (-89.4% qoq)

  • Capex stood at SAR500mn in Q4 21, with 2021 capex reaching SAR21.7bn (31.3% of sales)

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Head of Equity Research

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SNB Capital
17 March 2022
Published bySNB Capital

SEC reported a weaker than expected set of Q4 21 results with a net loss of SAR506mn (before Mudaraba instruments cost) vs a net income of SAR4.14bn in Q4 20 and SAR7.38bn in Q3 21 and our estimates of SAR1.72bn. Although revenue was broadly in-line with our expectation, the variance was mainly due to 1) higher than expected COGS on higher fuel and maintenance costs and 2) higher non-opex and zakat expense.

  • Revenues stood at SAR15.02bn in Q4 21, down 25.4% yoy (-31.9% qoq) and were broadly in line with our estimates of SAR15.63bn. The yoy decline in revenues is mainly due to SAR6.1bn one-off balancing funds recognized in Q4 20, while the qoq decline is attributed to seasonality. We note that SEC has not recorded a balancing amount in Q4 21 (vs an average of cSAR567mn in the past 3 quarters) which we believe is due to adjustments/settlements related to the RAB model. In Q4 21, SEC’s subscriber base grew 1.0% qoq to 10.5mn, while volumes decreased 34.3% qoq (+2.5% yoy) to 62.6 TWh.

  • Gross profit stood at SAR2.0bn in Q4 21, significantly lower than SAR5.39bn and SAR8.80bn in Q4 20 and Q3 21 respectively and compared to our estimate of SAR3.51bn. Gross margin came-in at 13.3%, vs 26.8% in Q4 20 and our estimates of 22.5%. We believe higher than expected fuel prices, purchased power, and maintenance costs were the key reasons behind lower margins.    

  • Operating profit stood at SAR849mn in Q4 21, down 83.8% yoy (-89.4% qoq), and was significantly lower than our estimates of SAR2.37bn. EBITDA decreased 55.2% qoq to SAR5.80bn vs SAR12.97bn in Q3 21.

  • In Q4 21, net loss after Mudaraba cost of SAR1.96bn stood at SAR2.47bn, vs our estimates of a net loss of SAR108mn and net profit of SAR3.20bn in Q4 20. We believe the variance increased post EBIT due to higher zakat and one-off expenses.

  • Capex stood at SAR500mn in Q4 21, with 2021 capex reaching SAR21.7bn (31.3% of sales), compared to SAR32.8bn in 2020 and our estimates of SAR25.0bn. SEC’s capacity grew 3.1% yoy to 54.8GW in 2021.

Outlook

Based on our latest update, we are Overweight on SEC with a PT of SAR24.9. Since then, the stock has recorded a strong rally of 46.4% and exceeded our PT.  We await the full financials to update our PT and estimates. The stock trades at 2022f PE and EV/EBITDA of 14.9x and 7.0x, respectively.