Yansab’s Q1 misses estimates on plant shutdown: Aljazira Cap

Yanbu National Petrochemical Co.’s (Yansab) net profit of SAR 630.6 million for the first quarter of 2018 missed Aljazira Capital and the market consensus estimates of SAR 723.8 million and SAR 725.5 million, respectively, the brokerage said in an earnings review.

“We believe that the weaker than expected net profit was mainly associated with unaccounted 6-7 weeks shutdown of its high density polyethylene (HDPE) and linear low density polyethylene (LLDPE) units according to industry source,” the report said.

This impact contributed to a deviation of almost SAR 300 million from Aljazira Capital’s sales estimates in Q1, the firm said.

Yansab’s revenue rose only 1.6 percent year-on-year (YoY) to SAR 1.78 billion in Q1, falling below estimates of SAR 2.05 billion due to lower sales after the un-accounted plant shutdown.

However, the firm’s sales volumes and margins will likely improve gradually starting Q2, the review said.

Estimates show that Yansab saw lower operating rate of 94.7 percent compared to Aljazira Capital’s expectation of 99 percent. Nonetheless, operating rate is expected to continue to improve this year and onward.

Gross profit stood at SAR 739.8 million in Q1, while gross margins stabilized at 41.39 percent due to higher margins on propane-based products, despite the impact of plant maintenance.

Yansab is expected to post SAR 3.067 billion in net income for fiscal year 2018, up 29 percent YoY due to the positive impact after plant shutdowns during Q2-2017/Q1-2018 and better overall product spreads.

The petrochemical firm is also expected to see improved production efficiency and capacity from Q2 onwards.

“We expect the company to increase dividend payment to SAR 4 per share,” Aljazira Capital said.

The brokerage has recommended a “Neutral” rating on the stock with a target price of SAR 73.50 per share.