Earnings Report /
Saudi Arabia

SABIC Agri-Nutrients: Weaker-than-expected Q1 20 results on lower sales

  • Revenues stood at SAR728mn, flat yoy (down 13.9% qoq). This is significantly lower than our estimates of SAR843mn

  • Gross income was SAR368mn (down 2.7% yoy) and was 12.1% lower than our estimates of SAR419mn

  • EBIT declined by 5.9% yoy (-18.4% qoq) to SAR278mn and was lower than our estimates of SAR332mn

Iyad Khalid Ghulam
Iyad Khalid Ghulam

Head of Equity Research

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SNB Capital
29 April 2020
Published bySNB Capital

SAFCO reported a weaker-than-expected set of Q1 20 results with a net income of SAR304mn, declining -9.5% yoy (-10.3% qoq). This compares with the NCBC and consensus estimates of a net profit of SAR341mn and SAR332mn, respectively. We believe lower than expected results are mainly due to lower sales volumes as prices were broadly unchanged qoq.

Revenues stood at SAR728mn, flat yoy (down-13.9% qoq). This is significantly lower than our estimates of SAR843mn. We believe the lower revenues are due to deeper discounts offered and/or lower sales volumes. Based on the results, we believe SAFCO operating rates were c86% lower than our estimates of 100% and compared to 93% in 2019. 

Gross income was SAR368mn (down -2.7% yoy) and was 12.1% lower than our estimates of SAR419mn. Gross margins came-in at 50.5%, broadly in-line our estimates of 49.7% and Q1 19 levels of 52.6%. 

EBIT declined by -5.9% yoy (-18.4% qoq) to SAR278mn and was lower than our estimates of SAR332mn. SG&A came-in at SAR90mn compared to our estimates of SAR87mn and Q1 19 of SAR83mn. 

The variance declined to -11.0% at the net income level and came-in at SAR304mn. This may be due to higher than expected income from associate, Ibn Al Baytar. We estimate that Ibn Al Baytar income was SAR38mn vs our estimates of SAR22mn and Q4 19 of SAR24.2mn. 

In Q1 20, petrochemical prices declined to its lowest levels in more than 13 years due to the adverse impact of COVID-19 and weak oil prices. However, urea prices remained steady. In Q1 20, average urea prices declined -5.5% yoy (flat qoq) to US$246 per ton. Ammonia prices declined -8.8% yoy (flat qoq) to US$255 per ton. 

We advise investors to approach petrochemical sector with caution, as the rapid spread of Covid-19 and subsequent precautionary measures has adversely effected the global economic outlook. However, urea prices remained steady during this period, which could be attributed to stable demand and lower exports from China. We are Neutral on SAFCO with a PT of SAR77.6.