Advanced Q2 beats estimate on higher gross margins: NCB Cap

09/07/2017 Argaam

Advanced Petrochemical Co.’s Q2 net profit of SAR 194 million came significantly above NCB Capital’s estimate of SAR 133 million, on higher than expected operating rates and gross margin, the brokerage said in an earnings review.

 

Gross margins stood at 36.4 percent in Q2, ahead of the brokerage firm’s estimate of 28.1 percent and actual 27.2 percent in Q1, due to improved operational efficiency following an eight-day shutdown in the first quarter of the year.

 

Revenue also topped the brokerage firm’s forecast by 9.3 percent, coming in at SAR 604 million.

 

Based on NCB Capital’s calculations, the petrochemical firm’s facilities operated at 121 percent in Q2, higher than Q1 and the brokerage’s estimate of 111 percent.

 

“We believe the company sold 160,191 tons of polypropylene (PP) products in Q2, higher than 133,779 tons in Q1and our estimate of 146,831 tons,” the report said.

 

Key upsides for the stock going forward are higher operating rates and efficiency, a strong balance sheet, and an attractive dividend yield of 6.2 percent.

 

Meanwhile, normalizing polypropylene-propane spreads remains a key risk, NCB Capital said.

 

The brokerage maintained a “Neutral” rating on the stock but cut its target price to SAR 42.8 from SAR 45.10.

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