Revenue – SAR2.72bn, -6% Y-o-Y, -6% Q-o-Q, -3% vs EFGe
Gross Profit – SAR597mn, -17% Y-o-Y, -23% Q-o-Q, -18% vs EFGe
Operating Income– SAR588mn, +47% Y-o-Y, -14% Q-o-Q, -9% vs EFGe
Net Income – SAR186mn, -43% Y-o-Y, -28% Q-o-Q, -30% vs EFGe
 
Tasnee reported its 4Q18 results with earnings falling 28% Q-o-Q to SAR186mn, missing both our (-30%) and Bloomberg consensus forecasts (-36%). The main factor behind the weaker earnings, as well as the miss, appears to be lower-than-expected revenue and margins at the TiO2 division, although petchem earnings were also likely lower on the weaker price environment (not yet clear as full financials not available).
 
Revenues - mainly consisting of TiO2 sales – fell 6% Q-o-Q to SAR2.72bn, slightly below our expectations likely on lower-than-expected volumes. The bigger miss however was at the margin level, as gross margins fell to 22% from 27% in 3Q18 (25% in 4Q17) and were below our 26% forecast. We believe that margins could have been negatively impacted by rising titanium feedstock prices as high grade feedstock prices had been increasing in 2H18 (Cristal is not fully integrated and buys primarily titanium slag from the market).
 
EBIT was down 14% Q-o-Q but the miss narrowed to only 9% as it appears that either S,G&A costs were much lower than expected or that income from JV (the petrochemical operations) was higher-than-expected (Tasnee includes income from JVs above the EBIT line). 
 
Overall, while earnings missed our expectations, we had been expecting feedstock costs to catch up to TiO2 prices at some point and we are already forecasting lower margins for next year (22% for FY2019), so this does not change our views on the name. We have a Neutral rating on Tasnee and we believe the company’s higher risk profile (elevated leverage) is priced in at current levels. (Yousef Husseini, Company)
 
National Industrialization Company: SAR16.50 as of 27 Feb. 2019, Rating: Neutral, TP: SAR18.00/share, MCap: USD2,943mn, NIC AB/2060.SE