Saudi Kayan’s record Q1 profit beat estimates, says Aljazira Cap

Saudi Kayan Petrochemical Co. (Saudi Kayan) reported its highest-ever net profit of SAR 462.6 million in the first quarter of 2018, exceeding Aljazira Capital and the market consensus estimates of SAR 394 million, the financial advisory firm said in an earnings review.

Saudi Kayan’s strong year-on-year (YoY) performance is mainly attributed to higher average sales prices, higher overall margins due to improved operating efficiency and products spreads, and lower operating expenses, Aljazira Capital said.

Gross margin increased on YoY basis to 31.5 percent versus 26.5 percent – the highest since inception.

“We believe that the higher production efficiency after plant maintenence, higher Ethane-based products margins, and 17.2 percent quarter-on-quarter higher margin of Butane downstream products were the keys to support overall margin expansion,” the report said.

Sales in Q1 stood at SAR 2.727 billion, missing the estimates of SAR 2.767 billion on lower ramping-up in the plant’s operating rates after maintenance during the previous quarter.

“We believe that the plant maintenance in 2017, positively impacted the overall performance in Q1 2018; we expect further improvement in performance in FY2018 and onward,” Aljazira Capital said.

Looking forward, plants shutdown in Q4 2017 is likely to support Kayan’s top line, boosting its annual production capacity of ethylene and pure ethylene oxide to at least 93,000 tons and 61,000 tons, respectively.

The company is seen to post a net profit of SAR 1.897 billion for fiscal year 2018.

Aljazira Capital recommended “neutral” rating on the stock with a target price of SAR 14.50 per share.