Tasnee reported a Q2 22 net profit of SAR297mn, down 16.7% yoy (-3.8% qoq). This is lower than the SNB capital and consensus estimates of SAR323mn and SAR316mn respectively. Although operating profits were in-line with our estimates, the weaker than expected results were due to higher-than-expected financing and zakat expenses. The yoy decline in profits were mainly due to a lower share of profits from JV’s, while the qoq decline was due to lower gross margins due to a rise feedstock costs. Additionally, the higher financing charges and zakat expenses in Q2 22 contributed to a decline in profitability.
Revenues stood at SAR1.08bn, up 38.0% yoy (+10.0% qoq) and is higher than our estimates of SAR981mn. The growth in revenues is attributed to the improved selling prices of downstream products and higher sales volumes of certain products.
Gross profit stood at SAR259mn, up 18.1% yoy (-10.1% qoq), slightly lower than our estimates. Gross margin came-in at 24.1%, lower than our estimates of 27.4%, and Q1 22 and Q2 21 levels of 29.4% and 28.1% respectively. We highlight, the decline in gross margin reflects the higher feedstock costs in Q2 22.
Operating income came-in at SAR563mn, down 7.5% yoy (+3.7% qoq) and in-line with our estimates. We believe, despite the growth in gross profits, the yoy decline was due to lower profits from JV’s and associates due to higher feedstock and logistic costs and lower selling prices of products. The qoq growth in operating income is attributed to higher profits from JV’s and associates qoq.
Based on our calculation net non-opex came in at SAR266mn higher than our estimates of SAR247mn and compared to SAR234mn in Q1 22. We believe the rise in non-opex was due to an increase in financing costs and zakat expenses.
In Q2 22, HDPE prices increased 11.2% yoy (+0.5% qoq) to US$1,220, while PP prices decreased 2.9% yoy (-1.2% qoq) to US$1,171. PP-propane spread decreased 57.3% yoy (-33.4% qoq) to US$276.
Based on our last update, we are Neutral on Tasnee with a PT of SAR18.9. We believe Tasnee’s key strength is its strong performing associates (SEPC and SPC). However, the high financing costs due to high debt levels, delays at the Jazan slag facility and uncertain impairments are key concerns. The stock is trading at 2022f P/E of 10.7x, lower than the peers group average of 18.6x.