Earnings Report /
Saudi Arabia

SIIG: Profits rise qoq with Petrochem’s acquisition

  • In Q2 22, SIIG’s share of profits from jointly managed projects decreased yoy due to an increase in feedstock costs.

  • Operating income stood at SAR299mn, decreasing 59.7% yoy (-19.7% qoq). This is in-line with our estimates of SAR296mn.

  • SIIG completed the acquisition of Petrochem on 10 April 2022 and SIIG’s ownership in Petrochem currently stands at 100%.

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Head of Equity Research

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SNB Capital
4 August 2022
Published bySNB Capital

SIIG reported a Q2 22 net income of SAR284mn, down 43.8% yoy (+20.9% qoq). This is slightly higher than the SNB Capital estimates of SAR267mn. Although operating income was in-line with our estimates, we believe the variance was due to lower than expected non-opex. We believe the yoy decline in net income is due to the decrease in SIIG’s share of profits in jointly managed projects because of high feedstock prices, while the qoq increase in net income reflects a higher share of SIIG’s profits in Petrochem post the 100% completion of the acquisition.

  • In Q2 22, SIIG’s share of profits from jointly managed projects decreased yoy due to an increase in feedstock costs. We highlight that due to the 100% acquisition of Petrochem in Q2 22, SIIG’s share of profits from Petrochem increased qoq with its increased stake in Petrochem despite a decrease in the average selling prices of products.

  • Operating income stood at SAR299mn, decreasing 59.7% yoy (-19.7% qoq). This is in-line with our estimates of SAR296mn and compared to SAR742mn and SAR372mn in Q2 21 and Q1 22 respectively. We believe, the decline in operating income is attributed to lower share of profits from JV’s. Additionally, an increase G&A expenses also contributed to the yoy decline.

  • Net non-opex came in at SAR15mn in Q2 22, significantly lower than SAR237mn and SAR137mn respectively in Q2 21 and Q1 22 respectively and compared to our estimates of SAR29mn. We believe, the decline was due to a reversal in zakat provisions related to the previous quarter

  • 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. Benzene prices increased 29.3% yoy (+14.9% qoq) to US$1,254, while propylene prices were up 4.6% yoy (-0.5%qoq) to US$1,090. PP-propane spread decreased 57.3% yoy (-33.4% qoq) to US$276.

  • SIIG completed the acquisition of Petrochem on 10 April 2022 and SIIG’s ownership in Petrochem currently stands at 100%.  The financial impact of the acquisition is reflected in Q2 22. 

  • We highlight that starting from Q3 21, Petrochem deconsolidated its financial statements to account for its investments in Saudi Polymers Company and Gulf Polymers Distribution company as JVs using the equity method and accordingly SIIG followed a similar reporting.

Outlook

Based on our last update, we are Neutral on SIIG with PT of SAR32.1. We believe the future synergies and efficiencies due to Petrochem’s acquisition would be the key driver going forward. However, the lack of clarity on the JV’s operations and the volatility of the JV’s performance remains a key risk. The stock is trading at 2022f P/E of 16.6x, lower than the peers average of 18.6x.