Tasnee’s Q2 results came in line with estimates: Al Rajhi Capital

In an earnings review, Al Rajhi Capital said that National Industrialization Co.’s (Tasnee) Q2 net profit (SAR 94 million) came in line with the brokerage firm’s estimate of SAR 96million, but below consensus estimates of SAR 123 million.

The company’s Q2 net profit rose 7 percent higher year-on-year (YoY), while gross profit remained flat at SAR 425 million, slightly lower than estimates. Gross margin came at 15.9 percent, compared to 17.2 percent in Q1 2017 and 4.4 percent in Q2 2016.

The brokerage kept its “neutral” rating on Tasnee’s stock and revised the target price from SAR16/share to SAR 14/share.

“The company is rightly approaching its problem areas, but these are likely to take time,” Al Rajhi said in the note. “Moreover, presence of many external factors such as TiO2 prices, SAIBOR rates etc. could continue to delay its recovery.”

The key upside risks of these estimates are the sale of the company’s Cristal segment, recovery in TiO2 prices, sale of Jizan plant, and higher than expected cash flows from asset sales of unprofitable businesses. Meanwhile, downside risks include weaker spreads, increase in SAIBOR, higher-than-expected costs of operating Jizan plant and decline in TiO2 prices, the report added.

Al Rajhi Capital does not expect dividends until 2018 as a result of Tasnee’s debt and cash-flow position, the note added, unless the price of TiO2 product increases.

“The company mainly depends on its two key Petchem subsidiaries – SEPC and SPC - for bulk of its profits,” the note said. “Most of its other segments do not generate meaningful profits. These two subsidiaries are accounted as associate investments and dividends from these investments are only on a semi-annual basis (Q1 2017 had negative operating cash flow).”