Equity Analysis /
Saudi Arabia

SSP: Weak result on lower margins

    Iyad Khalid Ghulam
    Iyad Khalid Ghulam

    Vice President, Senior Equity Research Analyst

    SNB Capital
    5 May 2019
    Published by

    SSP reported a weak set of Q1 19 results with a net income of SAR0.3mn. This is lower than the NCBC estimate of SAR11.7mn. However, this is the first quarterly profit since Q4 17 and compares with a Q1 18 net loss of SAR5.0mn and a Q4 18 net loss of SAR102.6mn. We believe the variance in earnings is due to 1) higher than expected cost of sales due to change in sales mix, and 2) higher than expected financial expenses.

    SSP reported weak Q1 19 results with a net income of SAR0.3mn. This is lower than NCBC estimate of a net profit of SAR11.7mn. However, this is the first quarterly profit since Q4 17 and compares with Q1 18 net loss of SAR5.0mn and Q4 18 net loss of SAR102.6mn. We believe the variance in earnings is due to 1) higher cost of sales, and 2) higher financial expenses.

    Revenues increased +10.3% yoy to SAR195.3mn in Q1 19 (+4.8% qoq). This is +11.8% higher than our estimate of SAR174.8mn. We believe the variance is attributed to 1) an increase in project deliveries, and 2) higher sales of commercial pipes.

    Gross margin stood at 6.4% in Q1 19 vs gross margin of 9.5% in Q1 18 and gross loss margin of 3.5% in Q4 18. This compares to our estimate of 12.0%. The company attributed the decline in margins yoy to a change in sales mix. 

    Operating profit stood at SAR2.6mn in Q1 19, compared to our estimate of SAR10.8mn. This was mainly impacted by weak margins. Opex stood at SAR9.9mn in Q1 19, in-line with our estimate of SAR10.1mn and SAR10.3mn in Q1 18. This reflects an opex-to-sales ratio of 5.1% vs 5.8% in Q1 18. 

    Net income from its associate Global Pipes stood at SAR3.1mn in Q1 19. This is lower than our estimates of SAR4.4mn and compares to a loss of SAR8.2mn in Q1 18 and profit of SAR5.3mn in Q4 18.

    Financial expenses came in at SAR5.2mn vs our estimates of SAR2.9mn. This is an increase of 103% yoy and 17.9% qoq.

    In January 2019, SSP was awarded a SAR82mn contract from Saudi Aramco. The contract will impact the finances starting H2 19.

    We are Neutral on SSP with a PT of SAR19.4. We believe the implementation of the Iktifaa program and higher demand for pipes from higher oil prices are the key positive catalysts.