Earnings Report /
Saudi Arabia

Sipchem: Robust sales drive profits

  • Revenues came in at SAR3.19bn, up 35.1% yoy (+32.5% qoq). This was significantly higher than our estimates of SAR2.53bn

  • Gross profit stood at SAR1.68bn up 13,7% yoy (+21.4% qoq) and was higher than our estimates of SAR1.39bn

  • EBIT came-in at SAR1.37bn up 20.1% yoy (+19.3% qoq) and was higher than our estimates of SA1.15bn

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Head of Equity Research

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SNB Capital
26 July 2022
Published bySNB Capital

Sipchem reported Q2 22 net income of SAR1.26bn up 52.2% yoy (+17.1% qoq) and is much higher than the SNB Capital and consensus estimates of SAR1.08bn and SAR975mn respectively. The variance and yoy increase in net profit are mainly attributed to the robust revenue growth which translated to high gross profits. Additionally, lower financing costs due to lower debt and a higher share of profits from JV’s and associates also supported profitability growth.

  • Revenues came in at SAR3.19bn, up 35.1% yoy (+32.5% qoq). This was significantly higher than our estimates of SAR2.53bn and the highest on record. We believe the yoy growth in revenue was driven by higher selling prices for most products, while the qoq growth was driven by higher sales volumes despite lower product prices.  As per our calculations, operating rates were at 145% in Q2 22 higher than our estimates of 122% and Q1 22 levels of 118%. We highlight that the Q2 22 sales volumes were impacted by the 3-week maintenance turnaround of Sipchem’s IAC plant.

  • Gross profit stood at SAR1.68bn up 13,7% yoy (+21.4% qoq) and was higher than our estimates of SAR1.39bn. Gross margin came in at 52.6% lower than our estimates of 54.9% and compared to 57.4% in Q1 22. We believe the increase in gross profit was driven by higher sales while the decline in margins is due to the increase in feedstock prices.

  • EBIT came-in at SAR1.37bn up 20.1% yoy (+19.3% qoq) and was higher than our estimates of SA1.15bn. SG&A came-in at SAR310mn, higher than our estimate of SAR239mn. SG&A/sales stood at 9.7%, higher than our estimates and Q1 22 levels of 9.4% and 9.7% respectively.

  • Net non-opex came in at SAR106mn, vs our estimates of SAR73mn and SAR69mn in Q1 22. The net non-opex benefited from 1) lower financing costs due to loan reduction of SAR1.05bn vs Q4 21, 2) higher share of profits from associates. We believe this was offset by higher other expenses.  At the end of Q2 22, the gearing ratio improved to 26% vs 34% in Q4 21.

  • In Q2 22, average methanol prices increased 8.6% yoy (-4.9% qoq) to US$328, PP prices decreased 2.8% yoy (-2.0% qoq) to US$1,171. Acetic acid decreased 39.6% yoy (-12.4% qoq) to US$699. PP-propane spread decreased 57.2% yoy (-35.1% qoq) to US$276.

  • Outlook

Based on our June 22 update, we are Overweight on Sipchem with a PT of SAR63.1. We believe, Sipchem’s short to midterm outlook is positive driven by its unique product portfolio and advantageous feedstock mix. The stock is trading at 2022E P/E of 8.0x much lower than its peer group average of 17.0x.