Revenue: SAR210mn*
Gross loss: SAR21.4mn
Net loss: SAR29mn, vs. a net profit of SAR95mn in 4Q17, net profit of SAR169mn in 3Q18, EFGe net profit of SAR119mn 
 
Sahara reported its 4Q18 results on Thursday with a surprising net loss on the bottom line, which appears to be mainly driven by the shutdown at Al Waha, which was much worse than expected. Earnings this quarter were negatively impacted by a technical shutdown at Al Waha (since resolved) as well as lower prices across all operations. 
 
The numbers are a bit difficult to read through because the company has proportionally consolidated Al Waha petrochemicals (75%-owned, previously just income from JV) as it now qualifies to be consolidated this way under IFRS-11 (see more details below). However, it appears that this was only done for 4Q18 as revenues were reported at SAR210mn while 9M2018 proportionate revenues for Al Waha were already higher than that at SAR1,375mn. This muddies the picture a little bit, but it’s clear Al Waha was operating worse than expected with implied operating rates at c50% utilisation and that this was the main factor behind the major earnings compression and the miss.
 
We do not yet have details on the SEPC and SAAC operations, so it is not clear how they performed, though we had expected both to report lower earnings Q-o-Q on lower prices and margins.  
 
Overall, quite a disappointing set of numbers and it is difficult to figure exactly what happened due to the limited numbers available as well as the changes in presentation of the financials with the only sure thing that Al Waha was the main drag during the quarter. It is not clear if there were any other negative factors (one-offs, other expenses etc) as full numbers are not yet available, but we are trying to get in touch with management to get some clarification and will provide an update if we manage to reach them. Despite the disappointing numbers, we maintain our Buy rating on Sahara for now as we expect earnings to bounce back strongly in 1Q - despite lower prices - as Al Waha returns to normal operations. 
 
Al Waha qualifies for proportionate consolidation: Al Waha has been reconsolidated into Sahara’s financials proportionately (75%) after Al Waha signed an offtake agreement with Sahara Marketing Company (100%-owned by Sahara), allowing it to meet the requirements to be classified as a joint operations company under IFRS-11. (Yousef Husseini, Company)
 
Sahara Petrochemicals: SAR16.08 as of 27 Feb. 2019, Rating: Buy, TP: SAR18.50/share, MCap: USD1,882mn, SPC AB/2260.SE