Saudi Kayan’s Q2 beats estimates on higher operating rates, margins: NCBC

Saudi Kayan Petrochemical Co. earned a record high net profit of SAR 879 million in Q2 2018, significantly higher than NCB Capital and consensus estimates of SAR 426 million and SAR 467 million respectively.

“We believe the key reason behind the positive surprise is the higher than expected operating rates and higher margins. We believe operating rates stood at 115 percent vs. our estimate of 89 percent,” the brokerage said in an earnings review.

Saudi Kayan also reported its highest revenues since inception in the second quarter with revenues amounting to SAR 3.52 billion, increasing 52.6 percent year-on-year (YoY) and 29.2 percent quarter-on-quarter (QoQ). Revenue came in 29.2 percent higher than NCBC estimates.

Based on the investment bank’s calculations, Kayan facilities operated at 115 percent in Q2 2018, higher than the estimate of 89 percent.

“We believe improved operating rates are due to operational efficiencies following the 31-56-day shutdowns during Q4 2017,” NCBC said.

The Saudi-listed company’s gross margin stood at 36.9 percent, higher than estimates of 31.5 percent and levels of 31.6 percent the previous quarter.

Q2 gross margin was the highest on record, likely driven by higher product prices, operational efficiency following the shutdown in Q4 2017 and increasing polypropylene-butane spread.

Polypropylene (PP) prices increased 1.2 percent QoQ and 23.4 percent YoY in Q2 to $1236. PP-butane spreads increased 12.3 percent QoQ and 48.6 percent YoY to $756, reaching the highest level since Q2 2015.

NCBC is Neutral on Saudi Kayan with a price target (PT) of SAR 16.3.

“Following these strong results, we expect the stock to outperform the market. We await for the full financials to update our estimates and PT,” the investment arm of National Commercial Bank concluded.