Earnings Report /
Saudi Arabia

Yansab: Q4 results – highest margins since Q3 18

  • Revenues declined by -7.0% yoy and -4.3% qoq to SAR1.38bn and are lower than our estimates of SAR1.58bn

  • Gross profit increased +59.4% yoy to SAR475mn in Q4 20, significantly higher than our estimates of SAR371mn

  • EBIT was SAR371mn, up +104% yoy and compared to our estimates of SAR280mn

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Head of Equity Research

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SNB Capital
21 January 2021
Published bySNB Capital

Yansab reported a better than expected set of Q4 20 results, with a net income of SAR333mn, up +94.6% yoy and +70.1% qoq. This compares with the NCBC and consensus estimates of SAR271 and SAR262, respectively. Although topline were significantly lower than our estimates, we believe the better than expected results were driven by lower cost of production which led to the highest gross margin since Q3 18. Based on our last published update in June 2020, we are Neutral on Yansab with PT of SAR48.6. Since then, the stock recorded a strong rally of 34%. We await the full financials to update our PT and estimates.

Revenues declined by -7.0% yoy and -4.3% qoq to SAR1.38bn and are lower than our estimates of SAR1.58bn. We believe the variance is primarily due to lower operating rate. Based on our numbers, we estimate operating rates stood around 91%, lower than our projections of 104%, Q3 20 levels of 105% and Q4 19 of 94%. Low operating levels might indicate operational issues.

Gross profit increased +59.4% yoy to SAR475mn in Q4 20, significantly higher than our estimates of SAR371mn. Gross margin came-in at 34.5%, the highest level since Q3 18 and compared to our estimates of 23.5% and 19.2% in Q3 20. We believe the improvement in the margins is due to lower production cost and/or the usage of inventory.

EBIT was SAR371mn, up +104% yoy and compared to our estimates of SAR280mn. SG&A stood at SAR104mn vs our estimates of SAR91mn. SG&A/sales was 7.5% vs the historical average of 6.6%.

In Q4 20, HDPE prices increased +14.0% yoy (+5.8% qoq) to US$972, while PP prices increased +7.0 yoy (+12.4% qoq) to US$1,045. MEG prices declined -12.6% yoy (+8.8% qoq) to US$492. PP-propane spread increased 13.6% yoy (+14.6% qoq) to US$655.

Based on our last update published in June 2020, we are Neutral on Yansab with a PT of SAR48.6. Since then, the stock recorded a strong rally of 34%. We await the full financials to update our PT and estimates. Strong demand from China, weak US$ and higher oil prices are expected to support petrochemicals prices. However, the substantial increase in MEG supply from China is a key risk for Yansab.