Yanbu National Petrochemicals -Equity Report -14-07-2012

Weak Q2 results as expected

Yansab reported a net profit of SAR650mn for Q2 2012, slightly below our expectation of SAR677mn. Net profit declined by 32.6% y-o-y mainly due to a steep decline in basic olefin (ethylene, propylene and polypropylene) prices, despite an increase in production and sales volume. As stated in our recent sector report (dated 25 June 2012), we expect product prices to remain subdued due to global macroeconomic uncertainties. We believe Yansab is a well managed company with stable operations (with ~80-85% operating rates) and its weak performance in Q2 was mainly on account of global economic factors. We await the detailed financial results before making changes in our estimates. For the moment, we remain Overweight on the stock with a target price of SAR52.1.

Valuation and Conclusion: Overall, Q2 results we weak and as per our expectation. That said, we believe Yansab is a fundamentally strong company with stable operations and its recent performance has been impacted by a steep decline in product prices, which is an industry phenomenon. For the moment, we remain Overweight on the stock with a target price of SAR52.1.