Equity Analysis /
Saudi Arabia

Yansab: Q1 19: Weak results on lower revenues and margins

    Iyad Khalid Ghulam
    Iyad Khalid Ghulam

    Vice President, Senior Equity Research Analyst

    SNB Capital
    10 May 2019
    Published by

    Yansab reported weaker-than-expected results in Q1 19 with a net income of SAR391mn, declining 38.1% yoy (+67.3% qoq). This is lower than the NCBC and consensus estimates of SAR487mn and SAR503mn, respectively. We believe the weak results are mainly attributed to lower-than-expected operating rates and margins. Based on our estimates, operating rates stood at 84% versus our estimates of 94%.

    Revenues stood at SAR1.5bn, down 14.8% yoy and 6.0% qoq. This is significantly lower than our estimates of SAR1.7bn and is the lowest level since Q2 17. We believe the weak top-line is due to: 1) a decline in prices, and, 2) lower-than-expected operating rates. We expected Yansab facilities to operate at a high rate following the completion of MEG expansion in Q4 18. Yansab had a 56-day planned shutdown at its MEG facility to complete a debottleneck project which will increase the capacity by 10% to 850k mt. Based on our estimates, effective operating rates stood at 84.0%, lower than our estimates of 94%.

    Gross profit came in at SAR473mn, significantly lower than our estimates of SAR615mn. Gross margin stood at 31.0% versus our estimates of 36.0%, and compared with 41.4% in Q1 18. We believe the contraction in margins is due to: 1) weaker prices, and 2) low operational efficiency. 

    EBIT came in at SAR379mn, lower than our estimates of SAR508mn. We believe SG&A stood at SAR94mn versus our estimates of SAR107mn. Higher-than-expected other income reduced the variance to 19.8% at the net income level. Based on our estimates, non-operating profit stood at SAR11.6mn versus our estimates of a loss of SAR21.0mn. This compares with Q4 18 profit of SAR33.9mn and Q1 18 loss of SAR4.2mn. 

    In Q1 19, HDPE prices decreased 9.6% qoq (-20.7% yoy) to US$1,058, while PP prices were down 7.9% qoq (-11.2% yoy) to US$1,084. MEG prices declined 17.3% qoq (-35.2% yoy) to US$639. PP-propane spread increased +11.5% qoq (-1.1% yoy) to US$646.

    We are Overweight on Yansab with a PT of SAR82.6. Higher operating rates following to the MEG debottleneck project and attractive dividend yield of 5.5% are the stock's key strengths. Yansab is trading at 2019f PE of 12.5x, lower than the peer group average of 12.9x.