Equity Analysis /
Saudi Arabia

Tasnee: First results after the sale of Cristal

    Iyad Khalid Ghulam
    Iyad Khalid Ghulam

    Head of Equity Research

    SNB Capital
    29 July 2019
    Published bySNB Capital

    Tasnee reported a net income of SAR297mn, declining 25% yoy (+86% qoq). However, adjusting for the gain from the Cristal-Tronox transaction of SAR508mn, net loss stood at SAR211mn. This compares to the NCBC and consensus estimates of net income of SAR148mn and SAR136mn, respectively. We note that Tasnee completed the sale of Cristal in Q2 19 which resulted in major changes to the financials. We await the full financials to update our model and estimates.

    Note on Cristal – Tronox dealTasnee has deconsolidated the assets and liabilities of Cristal in Q2 19, with the equity investments in Tronox being recorded under investment in associates. Tasnee owns around 25% of Tronox. In April 2019, Tasnee announced the US Federal Trade Commission (FTC)’s approval of Tronox’s proposed acquisition of the TiO2 business of Cristal. Tasnee reported a net gain of SAR508mn as a result of the transaction. Due to the major changes to the financials of the company, we await for the full financials to update our model and estimates.

    Revenues stood at SAR731mn, an increase of 2.1% yoy (-1.1% qoq). This excludes Cristal’s sales.

    Gross margin came-in at 12.0%, lower than Q2 18 levels of 13.9% and Q1 19 of 16.1%. Gross profit stood at SAR87.7mn, down 12.0% yoy (-26.2% qoq). This excludes Cristal’s sales as well.

    EBIT came-in at SAR6.1mn, lower than our estimates of SAR514mn. We believe Tasnee’s income from associates (SEPC and SPC), stood at SAR327mn, down 15% yoy (-5.8% qoq). This is broadly in-line with our estimates of SAR344mn. The yoy decline is due to lower prices and spreads.

    Tasnee said that it has wrote-off certain projects related to AMIC which are not economically feasible after the sale of Cristal. However, Tasnee did not announce the exact write-off amount. 

    In Q2 19, PP prices increased +2.0% qoq (-10.5% yoy) to US$1,106, while HDPE prices decreased -1.6% qoq (-23.1% yoy) to US$1,041. PP-propane spread declined -7.7% qoq (-20.7% yoy) to US$596. 

    We are Neutral on Tasnee with a PT of SAR21.4. Tasnee trades at a TTM PE of 11.5x, broadly in-line with than the peer average of 11.9x. We await full financials to revisit our model and estimates.