Saudi Kayan posts weak results in Q4, says Aljazira Cap

Saudi Kayan Petrochemical Co. posted disappointing results for Q4 2018, with net loss of SAR 110.9 million, significantly below Aljazira Capital and analysts’ forecasts of SAR 379.6 million and SAR 335.5 million, respectively.

The results were mainly impacted by a higher-than-expected increase in the cost of goods sold, amid a 7 percent rise quarter-on-quarter in the feedstock cost margin, Aljazira Capital said in an earnings review on Tuesday.

“However, we expect that the substantial increase in COGS could include an additional one-off impact such as inventory write-down after 18 percent decline in its main product MEG, the investment firm added.

The petrochemical producer’s sales came in at SAR 2.64 billion in Q4, missing Aljazira Capital’s estimate of SAR 2.83 billion.

The fourth quarter gross margins contracted to 10.38 percent from 27.53 percent in the previous quarter.

“The sensitivity of Kayan’s gross margin is very high compared with the other players due to its high dependency on Butane (70-80 percent of feedstock), especially with the current oil price volatility,” the report added.  

Additionally, prices of MEG and polycarbonates add further pressure, due to bearish short-term outlook, which is expected to further weigh on top line and gross margin for at least one more quarter.

The investment firm revised down its forecasts for Saudi Kayan’s net profit for fiscal year 2019 to SAR 1.732 billion from SAR 1.885 billion.

Aljazira Capital added that it remained “overweight” on the stock, cutting its target price to SAR 18.50 from SAR 20.50.