Saudi Top Trading CEO expects 2022 profit to cross SAR 35 mln

Logo of Saudi Top Trading Co.

Saudi Top Trading Co. is expected to post net earnings of more than SAR 35 million (SAR 9 per share) for 2022, CEO Wail Aljaaidi told Argaam in an interview.

He added that the plastic recycling market is huge and promising, and is growing rapidly across the world as part of the circular economy. He highlighted the company's accumulated experience since 2006 in the production of various recycled polymers, with a capacity of more than 50,000 tons per annum (tpa) and an operating rate of over 90% in all production lines.

Furthermore, the CEO said the company exports to nearly 30 countries in Asia, Europe and Africa, and is exploring new markets to achieve flexibility in selling. The firm targets the most profitable markets and aims to reduce significantly political and geographical risks.

He shed light on the firm's future projects and his forecasts for raw material prices and demand for products. 

Here's the interview with Aljaaidi:

Q: Saudi Top Trading's H1 2022 net profit soared 255% year-on-year (YoY) to SAR 23.4 million. What is your comment on the results? What are your forecasts for H2 2022?

A: Thankfully, we achieved better financial results for H1 2022, due to focusing on the industrial activity and improving the selling mix to record better profit margins and average selling prices.

We expect to continue profit growth in the next periods, driven by the increase in the company's activities and the launch of new projects.

As for 2022, we forecast to record net earnings of more than SAR 35 million (nearly SAR 9 per share).

These improved results are due to the efforts of the company’s employees who have strong experience in this field.

Q: How can the company maintain the profitability level achieved in H1 2022?

A: We expect profitability to increase, as the company started the commercial operation of the polyethylene wax production plant in early 2022. This is considered the first-of-its-kind factory in the Middle East and North Africa (MENA) region.

We are working to expand in producing other types of industrial candles. We also added new production lines for recycling polymers, and are working on several projects that are expected to come on stream in the coming period.

The company recently signed a contract with the Saudi Authority for Industrial Cities and Technology Zones (MODON) for the allocation of an industrial land plot spanning 50,000 square meters next to the firm's existing factory in Al-Kharj Industrial City.

This expansion was planned next to the existing factory to take advantage of common services, supply chains and industrial integration between the two factories.

This will help reduce costs and raise operating efficiency. All these factors will help the company continue its profit growth and record stronger earnings.

Q: You said the company's manufacturing costs are low. Could you explain the firm’s business model and its production?

A: Saudi Top Trading has been investing in the latest high-tech production lines, which contribute significantly to reducing costs through using energy more efficiently, reducing manpower, and raising production quality.

The firm has accumulated experience since 2006 that helps it offer high-quality products at the lowest possible costs. The company also benefits from its economic scale, as it produces more than 50,000 tons per annum (tpa) of various recycled polymers, which helps reduce total costs.

The operating rates of all production lines exceed 90%.

Q: Exports constitute the largest part of your sales, and the exchange rate was volatile over the previous period. How does the company hedge against exchange rate fluctuations and preserve profit margins?

Thankfully, we do not face such risks, as all our products are denominated in the US dollar. As the Saudi riyal is pegged to the US dollar, we can say that all of the company's purchases and sales are denominated in the dollar, so we do not face the risk of exchange rate fluctuations.

Q: As Saudi Top Trading targets chemical and mechanical expansions in plastics recycling. Can you give us more details on the target market size and benefits from these operations?

A: The plastics recycling market is a huge and promising, and it is expected to see accelerated growth in the coming period. Expansions are ongoing in the market and its applications across the world, as part of circular economy.

Based on the large market size in the Kingdom, estimated at nearly 2.4 million tons of plastic waste, the low number of professional players in a nascent market, and the government support of diverting 82% of waste from landfills to contribute SAR 120 billion to gross domestic product (GDP) by 2035, all these factors drive us to invest in the sector and expand operations mechanically or chemically to go in tandem with the projected demand and growth in the coming period.

Q: What is the percentage of raw materials cost to total sales? How do you see the prices of raw materials going forward?

A: The cost of raw materials at Saudi Top Trading is estimated at nearly 65%. We expected a gradual, slow increase in these prices next year, depending mainly on inflation and interest rates, along with other political issues and their relevant impact on the supply chains of raw materials.

We adopt the price equation method, which is linked to local and global price indexes with respect to the purchase of raw materials and sale of end products. This helps us hedge against price fluctuations and maintain profitability levels.

Q: How can you evaluate the prices and demand for the company’s products in Saudi Arabia and target markets in the coming period?

A: Demand and price levels are good in the Saudi market. They are likely to improve in the coming period.

For overseas markets, the company exports products to almost 30 countries in Asia, Europe and Africa. It also aims to open new markets, in order to have more resilience in sales. Saudi Top Trading eyes high-profit markets abroad, to significantly reduce geopolitical risks.