Earnings Report /
Saudi Arabia

Yansab: Yansab Q3 19 results – Weak results on lower margins

    Iyad Khalid Ghulam
    Iyad Khalid Ghulam

    Vice President, Senior Equity Research Analyst

    SNB Capital
    21 October 2019
    Published by

    Yansab reported weaker-than-expected set of Q3 19 results with a net income of SAR212mn, declining 71% yoy (-33% qoq). This compares to the NCBC and consensus estimates of SAR275mn and SAR305mn, respectively. Although revenues were broadly in line with our estimates, we believe the weakness is mainly attributed to lower-than-expected margins on higher production costs. Gross margin came in at 20.8% in Q3 19, the lowest level on record.

    Revenues stood at SAR1.42bn, coming broadly in line with our estimates of SAR1.47bn. This is a decline of 33% yoy (-13.1% qoq). Based on initial numbers, effective operating rates stood at 86% vs our estimates of 89% and Q3 18 levels of 93%.

    Gross profit came in at SAR296mn, significantly lower than our estimates of SAR381mn. Gross margin stood at 20.8% vs our estimates of 26.0%, and 39.8% in Q3 18. This is the lowest gross margin on record. We believe that higher cost of production mitigated the improvement in spreads.

    EBIT came in at SAR205mn, lower than our estimates of SAR287mn. We believe SG&A stood at SAR91mn vs our estimates of SAR94mn. Higher-than-expected other income reduced the variance to 22.9% at the net income level. Based on our estimates, non-operating income stood at SAR6.7mn vs our estimates of a loss of SAR11.4mn. This compares to Q2 19 loss of SAR13.3mn and Q3 18 profit of SAR18.2mn.

    In Q3 19, HDPE prices decreased 26.4% yoy (-8.0% qoq) to US$958, while PP prices decreased 16.4% yoy (-6.3% qoq) to US$1,036. MEG prices declined 41.7% yoy (-2.6% qoq) to US$551. PP-propane spread declined 4.5% yoy, but increased 8.2% qoq to US$645.

    Saudi Petrochemical companies announced curtailment feedstock supplies ranging from 30-50% due to the attack on Saudi Aramco facilities in September 2019. However, supplies resumed 10-14 days after the incident and Saudi producers announced that no material financial impact has been reported.

    We are Neutral on Yansab with a PT of SAR74.0. We remain cautious on the stock as weakness in product prices is expected to more than offset the impact of improved efficiency. The stock is trading at 2019f PE of 12.1x, lower than the peer group average (excluding SAFCO) of 14.1x.