Yansab reported a disappointing set of Q3 22 results, with a net loss of SAR61mn versus profits of SAR180mn and SAR288mn in Q3 21 and Q2 22 respectively. This is much lower than the SNB Capital, and consensus estimates of SAR105mn and SAR177mn, respectively. Although revenues came in line with our estimates the variance in earnings is attributed to 1) much lower than expected gross margin and 2) lower than expected net non-operating income. Based on our last publish update, we our Overweight on Yansab with a PT of SAR66.3. We await full financial to update our PT.
Revenues decreased by 10.4% yoy (-22.6% qoq) to SAR1.59bn and was in-line with our estimates. We believe, the decrease in revenue was due to a decrease in average selling prices of products (-30.0% yoy, -23.0% qoq) partially offset by growth in sales volumes (+11.0% yoy, +17.0% qoq).
Gross profit came in at SAR75mn, down 78.3% yoy (-81.4% qoq) and was much lower than our estimates of SAR189mn. Gross margin stood at 4.7%, lower than our estimates of 11.9% and 19.3% and 19.4% in Q3 21 and Q2 22 respectively. We highlight that this is the lowest gross margin on record. We believe the decline in margins is due to 1) higher than expected input prices, 2) higher than expected shipping costs and/or 3) inventory losses.
Operating loss stood at SAR46mn versus profits of SAR215mn and SAR277mn in Q3 21 and Q2 22 respectively and our estimates of SAR78mn. Opex came in at SAR121mn, slightly higher than our estimates of SAR112mn and compared to Q2 22 expense of SAR123mn. Opex to sales stood at 7.6% and was higher than 6.0% in Q2 22 and our estimates of 7.0%.
Net non-operating expense stood at SAR15mn, lower than our estimates of an income SAR27mn and an income of SAR12mn in Q2 22. In Q3 22, EBITDA came in SAR248mn, down 54% yoy (-59% qoq), while FCF was negative at SAR839mn (vs positive FCF of SAR329mn).
In Q3 22, HDPE prices decreased 5.0% yoy (-14.6% qoq) to US$1,032, while PP prices decreased 10.8%yoy (-14.7% qoq) to US$1,016. MEG prices decreased 23.0% yoy (-17.2% qoq) to US$530. PP-propane spread decreased 43.7% yoy (+1.6% qoq) to US$301.
Based on our June 2022 update, we are Overweight on Yansab with a PT of SAR66.3. We await full Q3 2022 financial to update our PT. We believe Yansab’s key strengths include a debt free balance sheet, providing Yansab with a competitive advantage in the current high interest rate scenario, high cash levels and an attractive dividend yield of 6.4%. However, the global economic slowdown and its impact on product prices is a key risk. Yansab is trading at 2023 P/E of 15.7x vs its local peer group average of 15.3x.