Earnings Report /
Saudi Arabia

SABIC Agri-Nutrients: Q4 19 results: Lower opex offset by weak associate income

    Iyad Khalid Ghulam
    Iyad Khalid Ghulam

    Head of Equity Research

    SNB Capital
    26 January 2020
    Published bySNB Capital

    SAFCO reported an in-line set of Q4 19 results with a net income of SAR338mn, declining 40.5% yoy (-18.3% qoq). This compares with consensus estimates of SAR353mn. We believe lower than expected opex was offset by lower income from associate Ibn Al Baytar.

    Revenues stood at SAR846mn, declining 22.4% yoy (-7.0% qoq). This is in line with our expectations. We believe SAFCO operating rates were 95% in line with our estimates and Q4 18 of 94%. 

    Gross income was SAR426mn, 3.4% higher than our estimates of SAR412mn. Gross margins came in at 50.3%, marginally higher than our estimate of 48.5%. However, they were lower than Q4 18 levels of 63.2%. We believe the variance in margins is attributed to lower production cost. 

    EBIT declined by 41.0% yoy (-6.2% qoq) to come in at SAR341mn. However, it was 9.3% higher than our estimates of SAR312mn. SG&A came-in at SAR85mn lower than our estimates of SAR99mn and compares to SAR111mn in Q4 18. 

    The variance declined at the net income level to +2.7% due to lower than expected income from associate Ibn Al Baytar. We believe associate income came-in at SAR12mn, lower than our estimate of SAR24mn and SAR32mn in Q4 18. 

    In Q4 19, average urea prices declined -23.7% yoy (-10.0% qoq) to US$246. Urea prices reached US$236 in Q4 19, the lowest level since March 2019. The muted demand outlook and oversupply in the urea market continued to drive the prices downward in 2019. Ammonia prices declined -24.5% yoy (+15.8% qoq) to US$255. 

    SAFCO signed a share purchase agreement with SABIC to acquire 100% stake of SABIC Agri-Nutrients Investment Co. (SANIC). This will be financed by increasing the capital of SAFCO and issuing new shares to SANIC shareholders. 

    We are Neutral on SAFCO with a PT of SAR77.6. The development of the US-China trade conflict is the key catalyst for the sector. The stock is trading at 2020f PE of 17.1x, lower than the regional peer group average of 17.7x.