Earnings Report /
Saudi Arabia

SIIG: Q3 22 Results Analysis | Weak Petrochemicals sector earnings continue

  • SIIG reported a Q3 22 net income of SAR55mn down 73.0% yoy (-80.6% qoq).

  • Operating income stood at SAR58mn, decreasing 82.9% yoy (-80.6% qoq).

  • Net non-opex came in at SAR3mn in Q3 22 significantly lower than SAR135mn in Q3 21 and SAR15mn in Q2 22

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Head of Equity Research

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SNB Capital
10 November 2022
Published bySNB Capital

SIIG reported a Q3 22 net income of SAR55mn down 73.0% yoy (-80.6% qoq). This is lower than the SNB Capital and consensus estimates of SAR173mn and SAR229mn, respectively. The operating income came in at SAR58mn (-82.9% yoy, -80.6% qoq), lower than our estimate of SAR180mn. The yoy decline in net income is due to the decrease in SIIG’s share of profits in the JVs which we believe is due to higher production cost, similar to the Q3 22 results of other Saudi producers. 

  • In Q3 22, SIIG’s share of profits from jointly managed projects decreased yoy due to an increase in feedstock costs and lower selling prices.

  • Operating income stood at SAR58mn, decreasing 82.9% yoy (-80.6% qoq). This is lower than our estimates of SAR180mn and compared to Q3 21 and Q2 22 levels of SAR339mn and SAR299mn, respectively. We believe the decline in operating income is attributed to lower share of profits from JV’s. Additionally, increase in general and administrative expenses also contributed to the yoy decline.

  • Net non-opex came in at SAR3mn in Q3 22 significantly lower than SAR135mn in Q3 21 and SAR15mn in Q2 22 and compared to our estimates of SAR7mn.

  • 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. Benzene prices decreased 0.8% yoy (-18.7% qoq) to US$1,019, while propylene prices were down 7.2% yoy (-17.4%qoq) to US$900. PP-propane spread decreased 43.7% yoy (+1.6% qoq) to US$301.

  • 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 weak prices and high feedstock cost are the main risks for the sector in the coming period. Additionally, the lack of clarity on the JV’s (with Petrochem) operations and the volatility of the JV’s performance remains a key concern. The stock is trading at 2023f P/E of 16.9x, lower than the peers average of 11.1x.