Qurain Petrochemical Industries K S C P : Transcript of the Analysts Conference

Qurain Petrochemical Industries Company KSC (Public)

Thursday, August 18, 2022-14:30 (Kuwait UTC+03:00)

Q1 2022/23 earnings call

Qurain Petrochemical Industries Company (QPIC)

Earnings Call transcript for the first quarter ended 30 June 2022 (Q1 FY2022/2023) - edited script -

Held on Thursday, August 18th, 2022 at 14:30 (Kuwait Time) (UTC +03:00)

Participants from QPIC:

• Tanweer A. Khalfay, Chief Financial Officer (CFO)
• Mickey Zacharia, Chief Investment Officer (CIO)
• Abdulhameed N. Malhas, Investment & Communication Manager

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Qurain Petrochemical Industries Company KSC (Public)

Thursday, August 18, 2022-14:30 (Kuwait UTC+03:00)

Q1 2022/23 earnings call

Abdulhameed Malhas: Good afternoon, ladies and gentlemen, and thank you for joining us today on Qurain Petrochemicals Industries Company (QPIC) webinar for the first quarter period ended 30th June 2022 of the financial year 2022/2023.

This is Abdulhameed Malhas, the investment and communication manager of QPIC. I have with me on the call today my two colleagues: Mr. Tanweer Khalfay, CFO of QPIC, and Mr. Mickey Zacharia, CIO of QPIC. We will begin today's presentation with the main financial and business highlights of the quarter, and then we will follow by a Q&A session to answer any enquiries you may have.

Before proceeding, I would like to draw your attention to the disclaimer on page two of the shared presentation. This webinar and presentation by no mean an invite or an offer to subscriber or conduct any transaction on a particular security. Any forward-looking statements that may arise during this call are made to the best extent of our knowledge and assumptions as of date. Future results, performance, and events could always differ from those described during the webinar.

I will hand over the call now to Tanweer to begin the presentation.

Financial Highlights

Tanweer Khalfay: Thank you, Abdulhameed. Good afternoon, everyone. We're happy to present to you the financial results for the first quarter period ended 30th June 2022 of the financial year 2022/2023.

In the first quarter of 2022/2023 ending on 30th June 2022, QPIC earned a Net Income of KD 6.30 million versus KD 1.56 million for the same quarter last year, representing an increase of 305%. The Earning Per Share (EPS) for this quarter was 5.87 fils per share versus 1.52 fils per share last year.

The first quarter witnessed increased Sales Revenues from our Subsidiaries from KD 54.37 million for the first quarter last year to KD 68.73 million for this quarter, translating into an increase of KD

14.36 million or 26% mainly on account of increased sales revenue from our subsidiary Saudia Dairy & Foodstuff Co. (SADAFCO). This resulted in a Gross Profit of KD 20.65 million for the quarter, an increase of 34% compared to KD 15.46 million for the same quarter last year.

Dividend, interest and other income increased significantly from KD 0.74 million to KD 4.75 million in the current quarter, mainly owing to receiving interim dividend from EQUATE Group.

Share of results from associates increased from KD 0.92 million during the same period last year to KD 1.01 million this year, representing an increase of KD 0.1 million or 10%, owing to the share of profit from Advanced Technology Company (ATC). ATC, an associate acquired last year, posted a net income of KWD 2.12 million for their first quarter. QPIC's share of the same at 29.5% is KD 0.63 million.

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	Qurain Petrochemical Industries Company KSC (Public)
	Thursday, August 18, 2022-14:30 (Kuwait UTC+03:00)
	Q1 2022/23 earnings call
Tanweer Khalfay:	General and Administrative expenses increased from KD 6.54 million during the same period last
	year to KD 6.96 million during the quarter, an increase of KD 0.42 million or 6% mainly owing to the
	increase in G&A expenses of our subsidiaries. Finance cost increased by KD 2.26 million mainly due
	an increase from our subsidiary SADAFCO.

With that, I conclude the financial highlights portion.

Business Highlights

Abdulhameed Malhas: Thank you, Tanweer. I will continue the presentation now and cover the main business highlights of QPIC group on slide number 10 with Petrochemicals markets.

Petrochemical markets maintained the positive momentum and performance despite the geopolitical challenges, supply chain interruptions and COVID limitations in China.

EQUATE Group reported higher production and sales YoY despite the lower feed and multiple turnarounds witnessed during the first quarter. Ethylene Glycol (EG) & Pole-Ethylene (PE) average selling prices for the quarter were at US$ 703/MT and US$ 1,264/MT, which was 5% and 11% above the same period last year, respectively. It's also worth highlighting that EQUATE Group had approved during the quarter the distribution of interim dividend amounting to US$ 228 million; QPIC's share of this interim dividend amounted to US$ 13.7 million.

Moving on to the Aromatics business, Kuwait Aromatics (KARO) incurred US$ 1 net losses in Q1 2022; compared to net profits of US$ 9 million during the same period last year. This is mainly attributable to The Kuwait Styrene Co. (TKSC) losses owing to the planned turnaround, lower production and sales. Kuwait Paraxylene Production Co. (KPPC) benefited from the sharp improvement in product prices and margins despite the higher naphtha prices. Furthermore, on the market performance, both core products of KARO's subsidiaries overperformed last year. With Styrene Monomer (SM) & Paraxylene (PX) both tracking 11% and 45% higher, respectively, than the same period of last year.

Moving on to slide 11 with Oil & Gas services,

National Petroleum Services Co. (NAPESCO) posted net profits amounting to KD 1.0 million for Q1 2022, 25% below the same period last year despite the increased revenues. This is mainly due to the drop in gross margins from 23% to 21% as well as the 25% increase in cost of sales in non- oilfield segment. Revenue from oilfield contracts increased from 72% in Q1 2021 to 75% supported by higher margins from 23% in Q1 2021 to 27% in Q1 2022, while non-oilfield margins dropped drastically to 2% versus 23% in Q1 2021, thus adversely impacting net profits.

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Qurain Petrochemical Industries Company KSC (Public)

Thursday, August 18, 2022-14:30 (Kuwait UTC+03:00)

Q1 2022/23 earnings call

Abdulhameed Malhas: United Oil Projects (UOP) had a healthy first quarter of the year; net profits have increased by 41% increase versus the same period last year mainly driven by the higher contribution from Al Khorayef Holding owing to the GC-16 contract, while QMAX enjoyed the support of having greater rigs allocation, and finally, the chemical division which recorded higher exports however, these results were partially offset by the lower contribution from its associate company, United Precision Drilling Co (UPDC), which was impacted by delayed rig movement as a result of rig maintenance and preparation days earlier in January and February 2022.

Moving to the healthcare sector with Advanced Technology Co. (ATC),

ATC achieved healthy KD 2.12 million in net profits in the first quarter of 2022 versus KD 1.46 million last year, representing an increase by 46% YoY supported by the 19% higher sales. It's worth noting that during the quarter, QPIC successfully concluded its partial purchase offer on ATC to acquire an additional 9% equity stake at 500 Fils/share, thus increasing QPIC's total holding in ATC to 38.50%.

Moving to slide number 12 to cover Logistics & Basic Industries,

Jassim Transport & Stevedoring Co. (JTC) performed remarkably since the beginning of the year despite the onset headwinds impacting several areas of the business as demands remain on the lower side along with excess supply.

As a result, JTC posted healthy net profits in Q1 2022 amounting to KD 1.26 million, which is more than double the amount of the same period last year. In fact, Q1 resembled JTC's highest quarterly net profits since mid-2020, and the highest quarterly revenue in almost four years.

Performance of three out of four divisions, namely Transportation, Stevedoring and Leasing equipment, outperformed last year. Power Rental, which has been a consistent performer, was impacted by receivables provisions taken mainly for KSA operations. But it's worth mentioning that Generator utilization in KSA during Q1 stood at 63%, which was in line with last year, and in Kuwait it was maintained at 93-94% since December 2021, despite the addition of 50+ generators.

Finally, with regards to Insha'a holding,

Insha'a incurred a net loss during Q1 2022 and was significantly below last year's net profit mainly due to higher ECL provisioning and lower gross margin despite 13% higher revenue. Last year's profitability was also driven by higher gain from disposal of property, plant and equipment.

With that I conclude our part of the presentation.

We're happy to receive any questions that you may have…

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