EFG-Hermes said in a report on Sidi Kerir Petrochemicals (Sidpec) that the company reported its 2Q2014 results highlights today, with earnings showing a strong recovery Q-o-Q on the back of improved operations following the shutdown in 1Q2014.
The company’s net income, of EGP281 million, was up 23% Q-o-Q (-18%Y-o-Y), but came in 6% below EFG forecast on the back of higher-than-expected tax charges (c34% versus our 25% forecast), implying that the company charged 30% for 2Q2014 and an additional 5% retroactively for 1Q2014 (EFG forecasts assumed the tax would not increase until 2H2014).
“Adjusting for the retroactive tax, recurring net income in 2Q2014 was EGP297 million, in line with our EGP301 million forecast. We maintain our Buy rating,” said EFG. The report issuer added that, on the operating level, revenues were slightly higher than its expectation (+4%) at EGP761 million, but gross profit was in line (-1%) as margins disappointed (51.4% versus its 53.9% expectation) on the back of i) higher-than-expected costs/tonne, likely on the week-long shutdown during the quarter; and ii) slightly lower-than-expected local prices, which saw a marginal down-tick Q-o-Q (USD1,665/tonne in 2Q versus USD1,700/tonne in 1Q). Despite a week-long shutdown during the quarter, volumes increased 23% Q-o-Q and gross margins improved by c350bps on the back of improved productivity (average prices were flat Q-o-Q), in our view. “Overall, margins are likely to remain robust for Sidpec for the remainder of the year, especially with operations expected to improve in 2Q following two shutdowns in 1H2014,” according to EFG.