Advanced Petrochemical's Q1 2020 earnings came below expectations: Aljazira Cap

Advanced Petrochemical’s net income of SAR 104 million in Q1 2020 came below Aljazira Capital’s estimate of SAR 139.4 million due to losses from its associated company, the brokerage firm said in a research note.

Sales volumes were affected by weak demand due to the spread of COVID-19, while weak gross margin was a result of higher feedstock prices, the report added.

The research firm expects Advanced Petrochemical’s weak revenue in Q1 2020 to continue for the next quarter, in light of the slowdown due to Covid-19. However, the company’s current gross margin is not likely to continue in Q2 2020 due to 50% decline in feedstock prices.

By H2 2020, the company is projected to return gradually to its normal sales level, driven by estimated recovery of global demand and selling prices, it added.

Aljazira Cap expects the company’s gross margin to improve due to 50% decline in feedstock prices, and indicated that the progress on the new expansion plan will be the key catalyst for the future performance.

It expects Advanced Petrochemical to distribute a cash dividend of SAR 2.6 per share in the fiscal year 2020, and maintained its “Neutral” recommendation on the stock with a revised target price at SAR 49.50/share.