Petrochem’s Q2 net profit beat estimates, says NCB Cap

National Petrochemical Co. (Petrochem) reported a net income of SAR132 million in this year’s second quarter, significantly higher than NCB Capital’s (NCBC) and consensus estimates of SAR 92 million and SAR 109 million, respectively, the brokerage said in an earnings review.

The variation, according to NCBC, was due to higher than expected operating rates and lower non-operating expenses.

The company’s income has declined by 36.4 percent year-on-year (YoY) and 21.2 percent quarter-on-quarters (QoQ).

Petrochem’s Q2 revenues of SAR1.75 also beat NCB Capital’s estimates of SAR1.44 billion.

This rise is due to the fact that Petrochem’s facilities operated at 100 percent during the quarter in comparison with the brokerage’s estimate of 82 percent, and Q1’s 91 percent.

The gross margin came in at 24 percent, lower than the brokerage’s estimate of 25.7 percent.

“We believe higher cost of operations associated with the shutdown negatively impacted gross margins in 2Q17,” NCBC said.

NCB Capital has maintained its “neutral” rating on the stock, with a target price of SAR18.4 per share.

“Improvement in operational efficiency following shutdowns in 2Q17 and the potential increase in dividends are the stock’s key catalysts,” NCBC said.

High debt is the key risk, especially during a time of increasing interest rates, the brokerage said.