Equity Analysis /
Saudi Arabia

Yansab: Weak results on lower margins and higher opex

    Iyad Khalid Ghulam
    Iyad Khalid Ghulam

    Vice President, Senior Equity Research Analyst

    SNB Capital
    21 July 2019
    Published by

    Yansab reported weaker than expected set of results in Q2 19 with a net income of SAR316mn, declining 61.5% yoy (-19.1% qoq). This compares with NCBC Research and consensus estimates of SAR402mn and SAR401mn, respectively. Although revenues were in-line with our estimates, we believe the weakness is mainly attributed to lower than expected margins and higher opex. Gross margins came-in at 26.3% in Q2 19 vs our estimate of 30.3%.

    Revenues stood at SAR1.6bn, coming in-line with our estimates. This is a decline of -22.4% yoy (+7.6% qoq). Based on initial numbers, effective operating rates stood at 93% vs our estimates and Q2 18 levels of 92.4%.

    Gross profit came-in at SAR432mn, 12.7% lower than our estimates of SAR494mn. Gross margin stood at 26.3% vs our estimates of 30.3%, and 44.4% in Q2 18. We believe the variance in the margins is due lower than expected PP-propane spread (-7.7% qoq and -20.7% yoy to US$596) 

    EBIT came-in at SAR330mn, lower than our estimates of SAR399mn. We believe SG&A stood at SAR102mn vs our estimates of SAR95mn. Lower than expected other income increased the variance to 21.3% at the net income level. Based on our estimates, non-operating loss stood at SAR13.4mn vs our estimates of a profit of SAR2.3mn. This compares to Q1 19 profit of SAR11.6mn and Q2 18 profit of SAR4.7mn. 

    In Q2 19, HDPE prices decreased 23.1% yoy (-1.6% qoq) to US$1,041, while PP prices decreased 10.5% yoy (+2.0% qoq) to US$1,106. MEG prices declined 42.2% yoy (-11.4% qoq) to US$566. PP-propane spread declined 20.7% yoy (-7.7% qoq) to US$596.

    Yansab BoD announced a cash dividend of SAR1.75/ share for H1 19. This is similar to the H1 18 levels, but came lower than our estimates of SAR2.0/share. This reflects a TTM dividend yield of 6.3%.

    In our last update in May 2019, we downgraded Yansab to Neutral 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 13.5x, in-line with the peer group average (excluding SAFCO) of 13.6x.