Tasnee reported a net profit of SAR17mn in Q3 22, down 94.9% yoy (-94.2% qoq). This is significantly lower than the SNB Capital and consensus estimates of SAR163mn and SAR208mn, respectively. This is the lowest earnings since Q4 20 and similar to the weak results reported by the sector in Q3 22. Although revenue was in-line with our estimates, the decline in earnings was due to 1) lower gross margins driven by higher production and logistic costs 2) a decrease in profits from JVs 3) higher-than-expected financing costs and lower other income.
Revenues stood at SAR887mn, down 11.7% yoy (-17.6% qoq) and is inline with our estimates of SAR902mn. We believe the decline in revenues is due to lower selling prices of products despite higher sales volumes.
Gross profit stood at SAR130mn, down 13.2% yoy (-49.8% qoq) and is lower than our estimates of SAR188mn. Gross margin came-in at 14.7%, lower than our estimates of 20.8%, and Q2 22 levels of 24.1%, however it was in line with Q3 21 goss margin of 14.9%. We believe the decline in margins is due to higher-than-expected raw material cost and logistics.
Operating income came-in at SAR179mn, down 66.0% yoy (-68.2% qoq) and is significantly lower than our estimates of SAR336mn. Net opex (including profits from JVs) stood at SAR49mn significantly lower than our estimates of SAR148mn and compared to SAR376mn and SAR304mn in Q3 21 and Q2 22, respectively. We believe the lower income by associates and JVs (SEPC and SPC) is due to higher production cost, inline with the sector in Q3 22, and weak results from Tronox.
Based on our calculation, net non-opex came in at SAR162mn compared to our estimates of SAR173mn and lower than SAR266mn and SAR193mn in Q2 22 and Q3 21, respectively. We believe the increase in financing costs and lower other income was mitigated by a decrease in zakat provisions
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. PP-propane spread decreased 43.7% yoy (+1.6% qoq) to US$301.
Based on our last update, we are Neutral on Tasnee with a PT of SAR18.9. We await full financials to update our PT. The debt levels, delays at the Jazan slag facility and the overall global demand uncertainties are the key concerns. The stock is trading at 2023f P/E of 8.6x, lower than the peers group average of 14.6x