PETKM: 1Q23 Review (Oyak Yatırım)

On track to recovery but not yet there…

Petkim posted a net profit of TL155 million, above both market consensus (TL10mn net loss) and our estimate (TL77mn net loss). Our deviation is to blame for a TL1.1bn income from fair value increase in investment properties. EBITDA came -TL243mn, significantly below market consensus estimates of TL108mn and TL86mn. Upward trend in the spread, which started to recover in 1Q23, was not enough to generate positive EBITDA. On the production front, Pektim generated 571k ton of gross product in Q1 (4Q22: 366k ton, 1Q22: 710k ton) which corresponds to a capacity utilization rate of 63.9% (4Q22: 41%, 1Q22: 82%); however, 4Q22 was low due to a major maintenance in ethylene plant. CUR was weak due to delayed domestic supply and generally weak demand across the industry. Top-line reached TL9.2bn, in-line with the consensus estimates of TL9.4bn and our estimate of TL9.3bn.

Spread was better compared to q/q…
Ethylene-naphtha spread recovered by 50% from USD184/ton in 4Q22 toUSD275/ton in 1Q23 (2022 average: USD365/ton). The main reason of such increase was the 17% q/q surge in ethylene prices, compared to an 7% q/q increase in the cost of naphtha. Thanks to the fallback in oil prices in 1Q23, and low production capacity resulted by the maintenance shutdowns in the sector caused naphtha prices to decline even more than oil prices.

Margins deteriorated even more…
Gross margin turned negative in Q1, realized at -0.2% (1Q22: 14.7%, 4Q22: 0.7%). OPEX-to-sales was 5.9% (1Q22: 2.7%, 4Q22: 3.3%). Accordingly, EBITDA margin shrank to -2.6% (1Q22: 13.6%, 4Q22: -1.7%). Thus, recovering ethylene-naphtha spread was to enough to improve the margins, as they were exposed to vast cost burden, as ethylene and propylene prices were stagnated against narrowing naphtha costs.

Net debt/EBITDA multiple surged…
Net debt increased by 15% q/q to TL16.4bn while net debt/EBITDA surged from 4.2x to 10.3x due to lower EBITDA figure.

TP and estimates changed; Underperform maintained…
We believe that product margins have bottomed out, however; we do not expect a noteworthy recovery in a short term. Accordingy, we cut our 2023 revenues, EBITDA and net profit forecasts by 10%, 15% and 11% to TL48.9bn, TL3.6bn and TL4.3bn, respectively. We revise downward our target price to TL10.66/share from TL13.00 per share and keep our UP rating for the stock, which trade at 13.6x P/E and 7.4x EV/EBITDA based on our 2023 forecasts.



Oyak Yatırım Menkul Değerler A.Ş.
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