National Petrochemical Co. (Petrochem) reported a net profit of SAR 391 million in Q4 2017, its highest net income since inception, beating NCB Capital and consensus estimates of SAR 206 million and SAR 200 million, respectively.
“We believe the variance in earnings is due to higher operating rates, the usage of inventory and/or end of year sales settlement,” NCBC said in a note.
Revenues came in at SAR 3.85 billion, significantly higher than SAR 1.16 billion in Q4 2016 and NCBC’s estimate of SAR 1.91 billion. Fourth-quarter revenues were also the highest on record.
Petrochem’s operating rates stood at 200 percent versus the estimate of 100 percent and Q3 2017 level of 97 percent.
“We believe such rates are inflated and not reflective of upcoming quarters. Such rates may be attributed to the usage of inventory and/or end of year sales settlement,” the report said.
Gross income stood at SAR 788 million in Q4, 32.7 percent higher than NCBC’s estimate of SAR 594 million.
Gross margin stood at 20.5 percent, lower than the research firm’s 31.1 percent estimate, and the margin of 31.5 percent the previous quarter. The usage of inventory and the end of year sales settlement are likely to have weighed on margins, the report said.
Operating profit stood at SAR 605 million, 39.6 percent higher than estimates of SAR 433 million.
Selling, general and administrative (SG&A) expenses likely came at SAR 183.1 million (4.8 percent of sales) versus estimates of SAR 160.6 million (8.4 percent of sales).
Petrochem announced a cash dividend of SAR 0.5/share for 2017, in-line with 2016 and NCBC’s estimates. Higher dividends are a “key catalyst going forward,” the research firm said.
NCBC has a ‘Neutral’ rating on Petrochem, with a price target of SAR 18.4.
“We believe the Q417 strong results may be considered one-off. Higher prices and improved efficiency are key catalysts, while high debt levels of SAR 9.7 billion and net debt/EBITDA of 3.9x (9M17) is a key risk,” the report concluded.
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