Advanced Petrochemical’s Q4 results below estimates: Al Rajhi Cap

Advanced Petrochemicals Co. reported a net profit of SAR 631 million (down 14 percent year-on-year) for fiscal year 2017, falling short of Al Rajhi Capital’s estimates of SAR 687 million, due to higher costs and losses reported at its Korean associate, SK Advanced.

“Lower equity income and higher feedstock cost led to weaker than expected profit,” the brokerage said in an earnings review. 

Full year revenue for 2017 increased 11.5 percent year-on-year (YoY), mostly in-line with estimates, but operating income fell 15 percent as cost of propane surged 38 percent.

Net profit in the fourth quarter stood at SAR 104 million, missing Al Rajhi Capital’s estimate of SAR 160 million. The gap was attributed to losses at SK Advanced, which was reported to have a month-long maintenance shutdown.

Meanwhile, Q4 revenue came 5 percent below Al Rajhi Capital’s estimate, the research firm said, adding that it had expected productivity in Q4 to continue to increase like in the last three quarters.

Gross margin was 24 percent for the quarter, versus the brokerage’s estimate of 28 percent, due to higher propane costs and a 70 percent increase in outsourced propylene prices.

Overall Q4 operating profit came at SAR 115 million as compared to expectations of SAR 162 million.

“Though Q4 results have come in lower than expected, we do not see any red flags for either the production or the dividends despite its higher capex needs in 2018. We expect to see operating rates go up after the replacement of PDH catalyst,” the brokerage said.

Al Rajhi Capital maintained its Overweight rating on the stock and revised its target price to SAR 47.

“Given no major fundamental concerns and the stock at 52 week-low, with production rates expected to improve, we still believe APPC is a fundamentally healthy stock,” the report said.