Earnings Report /
Saudi Arabia

Saudi Electricity: Results in-line with expectation

  • Revenues stood at SAR19.40bn, up 4.4% yoy (+43.4% qoq) and were in-line with our estimates.

  • Gross profit stood at SAR6.55bn, up 1.3% yoy (+148% qoq) and was in-line with our estimate of SAR6.44bn.

  • Operating profit stood at SAR5.86bn in Q2 22, down 4.4% yoy (+165% qoq), slightly lower than our estimates of SAR6.19bn.

SNB Capital
22 August 2022
Published bySNB Capital

SEC reported a Q2 22 net income of SAR5.50bn (before Mudaraba instruments cost), in-line with our estimates of SAR5.44bn. This compares to a net income of SAR5.83bn and SAR1.52bn in Q2 21 and Q1 22, respectively. The yoy decline in net income is due to higher receivable provisions booked in Q2 22, due to increased average aging of receivables. Adjusting for the Mudaraba instrument costs, SEC recorded a net income of SAR3.59bnn in Q2 22 vs net income of SAR3.92bn in Q2 21 and net loss of SAR372mn in Q1 22.

  • Revenues stood at SAR19.40bn, up 4.4% yoy (+43.4% qoq) and were in-line with our estimates. The growth in revenues is due to higher electricity sales and increase in the subscriber base. Electricity sales increased to SAR17.4bn (+4.2% yoy), with increases in the commercial, government and industrial segments. The qoq growth is attributable to the seasonality in electricity consumption. In H1 22, SEC’s subscriber base grew by 4.0% yoy to 10.7mn.

  • Gross profit stood at SAR6.55bn, up 1.3% yoy (+148% qoq) and was in-line with our estimate of SAR6.44bn. Gross margin reduced to 33.7% in Q2 22 vs 34.8% in Q2 21, but were in-line with our estimates. We believe the yoy decline in margins were due to higher fuel costs given the increase in the production cost, higher purchased power and O&M cost.

  • Operating profit stood at SAR5.86bn in Q2 22, down 4.4% yoy (+165% qoq), slightly lower than our estimates of SAR6.19bn. We believe the decline in operating profit was due to higher G&A expenses, which increased by 26.9% yoy to SAR256mn mainly related to the absence of recovery of training services from HRDF amounting to SAR120mn. EBITDA decreased by 3.4% yoy (+57.0%qoq) to SAR10.89bn.

  • Capex stood at SAR6.2bn, up 5.1% yoy (+29.2%qoq) in Q2 22. SEC’s capacity stood at 54.6GW at the end of Q2 22 (+1% yoy). At the end of Q2 22, the asset base increased to SAR479.6bn (vs SAR474.9bn at Q4 21).

Outlook

Based on our April 2022 update, we are Neutral on SEC with a PT of SAR27.3. We believe, SEC’s network expansion along with modernization and automation of existing operations, along with higher-than-expected dividends will be the key stock driver. Changes in WACC and Mudaraba instrument rates are the key risks. The stock trades at 2022f PE and EV/EBITDA of 15.7x and 5.4x, respectively.