Petrochem’s Q1 profit beat estimates on higher margins: NCBC

National Petrochemical Co. (Petrochem) reported strong financial results for the first quarter of 2018, with a net income nearly doubling year-on-year (YoY) to SAR 334 million – beating NCB Capital and consensus estimates of SAR 292 million and SAR 288 million, respectively, the financial advisory firm said in an earnings review.

“We believe the variance is attributed to higher than expected operating rates, higher margins, and lower SG&A,” NCB Capital said.

Revenues of SAR 2.2 billion, the highest top-line since Q4 2014, were broadly in-line with the advisory firm’s estimates of SAR 2.1 billion.

Gross margin of 34.5 percent was slightly higher than NCB Capital’s estimate of 34 percent, due to higher spreads and improved efficiency.

Operating profit of SAR 606 million, an increase of 71.3 percent YoY, was also above estimates.

NCB Capital maintained a “neutral” rating on Petrochem, with a revised target price of SAR 29.8.

“We believe the higher dividends and the expansion in spreads are key stock catalysts,” the report said.

“The stock is trading at a 2018E P/E of 12.1x, lower than the sector average of 13.4x. However, it is trading at 2019E P/E of 14.4x which we believe reflects the expected impact of feedstock price revision,” it added.