Advanced Petrochemical’s (Advanced) bottom line in 3Q22 decreased by 87.6% YoY to SAR 27.0 mn, below our estimate of SAR 88.5 mn. The decline in the bottom line was mainly due to lower topline growth coupled with a higher-than-expected increase in operating expenses. The top line in 3Q22 declined by 18.4% YoY, mainly due to a fall in sales price by 22% YoY. In general, the price of petrochemicals has been impacted in 3Q22 due to a slowdown in demand from rising recessionary pressure. Advanced’s topline seems to have been impacted more by European market weakness. Advanced derives ~60% of total sales from Turkey and Europe. Apart from tepid demand, Europe is also hit by higher energy and gas costs, leading many producers to cut down on their operating rates during the quarter.
As per the management, the price of key feedstock propane increased by 6% YoY. Like other petrochemicals, propane price is also linked to crude oil prices. The price of brent crude in 3Q22 increased on average by 33% YoY. The upside witnessed in crude oil prices was partly reflected in the propane price, which increased by 6% YoY. Price of brent crude in 2Q22 increased on average by 62% YoY while propane price increased by 56% YoY.
Further, the bottom line was impacted by the continued loss reported by Advanced’s associate company SK Advanced. The quantum of losses has been increasing since 1Q22 from SAR 14.6 mn in 1Q22 to SAR 30.1 mn in 3Q22. The increased loss in 3Q22 can be attributed to the slowdown in the petrochemical market from reduced demand. SK Advanced operates a PDH plant which processes propane to produce propylene.