Earnings Report /
Saudi Arabia

Kayan: Strong sales drives earnings

  • Revenues stood at SAR3.41bn, up 14.6% yoy (+8.6% qoq) and was higher than our estimates of SAR3.10bn

  • Gross profit came in at SAR435mn, down 58.2% yoy (-7.1% qoq) and significantly higher than our estimate of SAR257mn

  • Operating profit stood at SAR246mn, down 72.7% yoy (-19.1% qoq) and is higher than our estimates of SAR97mn

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Head of Equity Research

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SNB Capital
28 July 2022
Published bySNB Capital

Kayan reported a net profit of SAR150mn in Q2 22, down 80.8% yoy (-28.3% qoq). However, this is significantly higher than the SNB Capital and consensus estimates of SAR4mn and SAR56mn, respectively. Revenues grew by 14.6% yoy, but the decline in earnings was driven by 1) higher feedstock costs resulting in lower gross profits, 2) higher opex and 3) higher financing costs. The variance was mainly due to higher than expected revenue, which we believe is due to a combination of better volumes and higher realized prices. 

  • Revenues stood at SAR3.41bn, up 14.6% yoy (+8.6% qoq) and was higher than our estimates of SAR3.10bn. The yoy growth in revenues was mainly driven by growth in sales volumes (+29% yoy). The qoq growth was driven by both higher selling prices (+6.0% qoq) and volumes (+3.0% qoq). Based on our calculations, we believe Kayan’s operating rates stood at 90% compared to our estimates and Q1 22 levels of 86% each. We believe Kayan’s ability to realize better product prices is a key highlight of the results.

  • Gross profit came in at SAR435mn, down 58.2% yoy (-7.1% qoq) and significantly higher than our estimate of SAR257mn. Gross margin stood at 12.8%, higher than our estimates of 8.3% and compared to 14.9% in Q1 22. We believe the decline in gross profit is due to the increase in feedstock prices primarily driven by higher butane prices (+16.0% qoq)

  • Operating profit stood at SAR246mn, down 72.7% yoy (-19.1% qoq) and is higher than our estimates of SAR97mn. Based on our calculations, SG&A stood at SAR189mn (5.6% of sales) higher than our estimates of SAR159mn (5.1% of sales) and SAR164mn (5.2% of sales) in Q1 22.  EBITDA stood at SAR842mn (-5.0% qoq) while free cash flow came in at SAR806mn (-23.0% qoq).

  • In Q2 22, HDPE prices increased 11.2% yoy (+0.5% qoq) to US$1,220, while PC prices declined 25.4% yoy (-0.6% qoq) to US$2,850. MEG prices decreased by 3.9% yoy (-9.9% qoq) to US$621.  PP-butane spread decreased 61.7% yoy (-41.4% qoq) to US$258.

Outlook

Based on our last update, we are Neutral on Kayan with a PT of SAR17.8. Despite the better-than-expected Q2 22 results, we believe the key risks in the near term are 1) the expected increase in financing costs given the high debt level of cSAR13.0bn and 2) the ongoing increase in feedstock prices. The stock is trading at 2022f P/E of 32.9x, higher than the peers group average of 17.2x.