SAFCO’s Q2 profit short of estimates, says NCB Cap

Saudi Arabia Fertilizers Co.’s (SAFCO) Q2 net profit of SAR 204.3 million came in short of NCB Capital’s estimate of SAR 241 million, due to higher-than-expected operating expenses (opex) and lower income from Ibn Al Baytar, the brokerage said in an earnings review.

Opex for the quarter was SAR 101 million, higher than NCBC’s estimate of SAR 82 million.

Revenues at SAR 679 million, down 4.3 percent year-on-year (YoY) in Q2, were in-line with the brokerage firm’s estimate.

NCBC said its calculations pointed to SAFCO’s facilities operating at 96 percent in Q2, lower than 103.6 percent in the same quarter last year, and in-line with the brokerage’s estimate.

“We believe the decline in operating rates is due to a 20 days shutdown at SAFCO III facility in Q2 2017. We expect operating rates to remain low in H2 2017 due to a 25-84 days shutdown at SAFCO 4 and 5,” the report said.

Meanwhile, Q2 gross margin came in at 42.5 percent, in-line with NCBC estimate of 43 percent. Lower operating rates on shutdown and weak urea prices impacted the gross margins, the firm added.

NCBC maintained a “neutral” on the stock with a target price of SAR 58 per share.

“Expansion of SAFCO 4 and strong balance sheet are the key positives. However, muted urea outlook and major shutdowns in 2H17 are the key risks,” NCBC said.