Earnings Report /
Saudi Arabia

Kayan: Weak earnings due to low sales and lower margin

  • Revenues stood at SAR3.14bn, up 16.9% yoy (-12.0% qoq)

  • Gross profit came in at SAR469mn, down 38.1% yoy (-39.0% qoq)

  • EBITDA came in at SAR886mn down 25.0% yoy (-22.0% qoq)

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Vice President, Senior Equity Research Analyst

SNB Capital
25 April 2022
Published by

Kayan reported a Q1 22 net profit of SAR209mn, down 57.5%yoy ( -53.7% qoq). This is significantly lower than the SNB Capital and consensus estimates of SAR513mn and SAR452mn, respectively. The decline and variance are attributed to 1) lower revenues due to decrease in average selling prices 2) higher costs of production due to increase in feedstock prices resulting in lower gross profits.

  • Revenues stood at SAR3.14bn, up 16.9% yoy (-12.0% qoq) and lower than our estimates of SAR3.55bn. The yoy growth in revenues was driven by an 18% increase in sales volume and was marginally offset by a 1% decline in selling prices. The qoq decline was due to a 11% and 1% decline in selling prices and volumes, respectively. Based on our estimates, Kayan’s operating rates stood at 86% compared to our estimates of 87%

  • Gross profit came in at SAR469mn, down 38.1% yoy (-39.0% qoq), significantly lower than our estimate of SAR806mn. Gross margin stood at 14.9%, lower than our estimates of 22.7% and compared to 28.2% and 21.5% in Q1 21 and Q4 21 respectively. We believe the decline in gross profit is due to the 43% yoy increase in feedstock prices.

  • Operating profit stood at SAR304mn, down 48.7% yoy (-44.0% qoq) and is lower than our estimates of SAR611mn. This decline is due to cascading effect of lower revenues and gross margins. Based on our calculations, SG&A stood at SAR165mn (5.2% of sales) lower than our estimates of SAR195mn (5.5% of sales) and SAR230mn (6.4% of sales) in Q4 21. 

  • EBITDA came in at SAR886mn down 25.0% yoy (-22.0% qoq) vs SAR1.18bn and SAR1.14bn in Q1 21 and Q4 21 respectively. Kayan reported Q1 22 Free cash flow of SAR1.05bn up 46.0% yoy ( -11.0% qoq)

  • In Q1 22, HDPE prices increased 10.6% yoy (+11.5% qoq) to US$1,190, while PC prices increased 30.1% yoy (-1.6% qoq) to US$4,000. MEG prices increased 14.7% yoy (-5.1% qoq) to US$751.  PP-butane spread decreased 27.8% yoy (+34.4% qoq) to US$450.

Outlook

Based on our May 21 update, we are Overweight on Kayan with a PT of SAR21.0. Despite the disappointing Q1 22 results, we believe the additional ethane allocation will result in a cost saving of more than SAR800mn annually starting from 2023f-2024f which will be a key driver going forward.  The stock is trading at 2022f P/E of 24.7x, higher than the peers group average of 18.2x.