Advanced's Q3 profit misses estimates on low margins: NCB Cap

Advanced Petrochemical Co.'s Q3 2018 net profit of SAR 202 million came below NCB Capital's forecast by 9.8 percent and consensus estimates by 5.2 percent, the Saudi-based brokerage firm said in an earnings review.

"We believe the variance in results is mainly attributed to lower gross margins on 1) lower PP prices, 2) declining spreads and 3) higher prices of propylene. Gross margins stood at 29.3 percent vs our estimate of 33.4 percent," NCB Capital added.

Revenue came in line with the brokerage firm's estimate, hitting SAR 745 million.

The third-quarter gross margins dropped to 29.3 percent from 36.0 percent in Q3 2017 and 37 percent in Q2 2018.

The petrochemical producer's profit share in its associate, SK Advanced came in at SAR 25.4 million in the third quarter, compared to SAR 23.8 million in Q3 2017 and SAR 23.6 million in Q2 2018 – beating the brokerage firm's estimate of SAR 22.5 million.

The Q3 cash dividend of SAR 0.7 per share matched NCB Capital's estimates. If annualized, the dividend yield stands at 5.2 percent.

The brokerage firm affirmed its "overweight" rating on the stock, setting its price target at SAR 61.6.

"High and sustainable operating efficiency and attractive dividend yield of 5.2 percent are the stock’s key strengths … The progress of its expansion plan in Saudi and South Korea will be the stock’s key catalyst," the report added.