EUR 126.58 For Business Accounts Only

PETKIM 2Q18 - BETTER

PETKM – BETTER.. TL371mn net profit in 2Q18 (+23% YoY) is better than consensus of TL208mn and our expectation of TL192mn. EBITDA of TL441mn (+5% YoY) is also better (consensus: TL317mn, our expectation: TL381mn) despite weaker ethylene-naphtha spreads. Main deviations from our expectations: i) higher than expected gross margin (20.0% vs. 17.5% our exp) possibly due to stronger pricing in aromatics and inventory gains with sharp depreciation in TL, ii) lower than expected financial expenses. Net debt position rose to TL2.5bn (US$546mn) + 177% YoY due to: i) 1st instalment payment (US$240mn) for 18% stake in STAR refinery in 1Q18, ii) 60% rise in working capital needs with higher receivable and inventory days and iii) TL depreciation. We expect the earnings announcement to have a positive impact on the stock performance. We might fine-tune our estimates but increasing supply from low-cost producers in US, weaker economic activity in Turkey coupled with sharp TL depreciation and volatility point to a weaker operating environment for 2H18.