Petrochem’s Q3 beat estimates on lower finance, zakat costs: NCBC

The National Petrochemical Company’s (Petrochem) net income of SAR 197 million, 13 percent higher than NCB Capital’s estimate and 9.4 percent above the consensus estimate, the brokerage said in an earnings review.

“We believe the variance is due to lower than expected finance and Zakat expense as operating profits were in-line with our estimates,” analysts at NCBC said.

Revenue came in at SAR 1.76 billion, 5.2 percent higher than the brokerage’s estimate, likely due to higher operating rates.

Based on the brokerage’s calculations, Petrochem operating rates stood at 98 percent in Q3, higher than NCBC’s estimate of 93 percent.

“We believe the improvement in operating rates is supported by operational efficiency following the shutdown in Q2,” the report said.

Gross income came in at SAR 552 million, broadly in-line with the estimate of SAR 542 million.

Although the petrochemical producer’s revenue beat estimates, higher cost of production offset this improvement, resulting in an-line gross profit, NCBC noted.

Meanwhile, gross margin stood at 31.5 percent, lower than the brokerage’s estimate of 32.5 percent and 34.9 percent in Q3 2016.

NCBC recommended a “Neutral” on Petrochem with a target price of SAR 18.4.

“Improvement in operational efficiency following shutdowns in Q2 2017 and the potential increase in dividends are the stock’s key catalysts,” the firm said.

However, high debt level of SAR 10.4 million with a net debt/EBITDA of 4.2x is a key risk, the report concluded.