Mesaieed Petrochemical Holding Company Q.P.S.C. (MPHC) Earnings Call Transcript & Summary

Hello, everyone, and welcome to Mesaieed Petrochemical Holding Company Conference Call. Please note that this call is being recorded. I'd now like to hand over to our moderator for today, Roy Thomas. Please go ahead.

Thanks, Eli. Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Mesaieed Petrochemical Holding Company's Second Quarter and First Half 2024 Financial Results Conference Call. On this call from Mesaieed Petrochemical Holding Company, we have Abdulla Yaqoob Al-Hay, the manager, privatized companies affairs, QatarEnergy; Sami Mathlouthi, the assistant manager, financial operations, privatized companies affairs, QatarEnergy; Rashid Hamad Al-Mohannadi, Head of Investor Relations and Communications, privatized companies affairs, QatarEnergy; and Saoud Ahamad Saifalddeen, senior financial management analyst, investor relations and communications, privatized companies affairs, QatarEnergy. We will conduct this conference call with management, first, reviewing the company's results, followed by Q&A. I will turn the call now over to Rashid Al-Mohannadi. Go ahead, Rashid.

Thank you, Roy. Good afternoon and thank you all for joining us. Before we go into the business performance updates, I would like to mention that this call is purely for the investor of MPHC and no media representatives should be attending this call. Kindly note that the MS Teams link is to display the IR deck on screen. [Operator Instructions] Moreover, please note that this call is subject to MPHC disclaimer statement as detailed on Slide #2. First, let me further share with you that, for the first time, MPHC Board of Directors decided to distribute an interim dividend. This is a clear instance of MPHC unwavering commitment to its shareholders and to the capital market in general. The decision was made while prudent care was taken to maintain adequate liquidity for CapEx requirement, debt obligation and unexpected adversity [ and/or ] regulatory requirement. Moving on to the call. On Monday, 12th of August, MPHC published its result for the 6-month period ended 30th of June 2024. And today, in this call, we will go through these results and provide you with an update on key financial and operational highlights, so during this call, along with me, I have Mr. Abdulla Yaqoob Al-Hay, manager for privatized company affairs; Mr. Sami Mathlouthi, assistant manager for financial operation. We have structured our call as follow. At first, I will provide you an quick insight into MPHC ownership structure, its competitive strengths and overall governance structure by covering Slide 5 till 10 and Slide 41 and 42. Secondly, Abdulla will brief you on the macro environment update and the dividend decision. Then Sami will brief you on MPHC key operational and financial performance metrics, including the segmental performance. To start with, as detailed [ on Slide #5 of the IR deck ], the ownership structure of MPHC [indiscernible] QatarEnergy with approximately 57.9% stake. And the rest is in the free float held by various domestic and international corporates and individuals. QatarEnergy, being the main shareholder of MPHC, provide most of the head office function through a service-level agreement. The operation of MPHC joint venture are independently managed by their respective Board of Directors along with senior management team. In term of the competitive advantages, as detailed on Slide #8 of the IR deck, MPHC group companies are strategically placed in term of competitively priced and assured feedstock supply under long-term arrangement, solid liquidity position with strong cash generation capability and the presence of the most reputable joint venture partners. Additionally, its partnership with Muntajat acts as a catalyst for its access to the global markets. As detailed on Slide #10, from a competitive positionings perspective, MPHC ranks among the top-tier companies in the regional chemical space, across most of the metrics, and especially leads the chart in term of their profitability margin. In term of the governance structure of MPHC, you may refer to Slide 41 and 42 of the IR deck, which cover various aspects of MPHC code of corporate governance in detail. I will now hand over to Abdulla Al-Hay.

Thank you, Rashid. [Foreign Language]. Good afternoon and thank you all for joining us. Reflecting on the year-end of last year. QatarEnergy successfully honored its IPO commitments by allocating the second and final tranche of incentive shares to the eligible MPHC shareholders. This significant milestone involved transferring 948 million ordinary shares from QatarEnergy to eligible IPO shareholders as outlined in the IPO prospectus of MPHC. Additionally, following the new ownership structure after the incentive shares allocation, a total annual dividends for the fiscal year 2023 was issued, amounting to approximately QAR 1.1 billion, which equal to QAR 0.086 per shares, representing 100% payout of the 2023 net profit. With the half year result of 2024 and considering the latest regulatory update, QatarEnergy announced its support for the initiatives of distributing interim dividends by its listed companies. This is a crucial step to -- and the -- [ bolstering ] efforts and initiatives aimed at [ fulfilling the national economy-wide ] development Qatar capital market aligned with top regional and international standards. In response to QatarEnergy announcement, MPHC evaluated its financial and legal ability to issue semiannual dividends. Consequently, the Board of Directors, on August 12, 2024, resolved its distribution, cash dividends, totaling QAR 339 million for the period ended June 30, 2024. This distribution represents an 85% payout ratios of the net profit for the current period, amounting to QAR 0.027 per share, for the shareholders registered at the closing date on August 20, 2024. This distribution marks a strategic effort to enhance shareholder value while upholding a robust and resilient financial position to safeguard the company against potential future market volatility. Moving to the macroeconomic analysis. The macroeconomic climate remain [ waved ] during the first half of 2024, as the market sentiment remains driven by uncertainty about the global economic recovery, in addition to recessionary fears linked to inflation related to pressure and higher interest rate environment. Overall, commodity prices for MPHC basket of products declined year-over-year mainly to -- mainly due to buyers' caution approach amid macro headwinds, coupled with comparative lower energy prices. On a quarter-over-quarter basis, the prices have inched up as [ global economic are ] showing a sign of graduate recovery. My colleague Sami will further take you through the operational aspects as well as financial performance of the company.

Thank you, Abdulla. Good afternoon and thank you all for joining us. Comparing MPHC financial performance for first half 2024 versus the first half for 2023. As referred to in Slide 16, MPHC reported net profit of QAR 398 million for the 6-month period ended 30th of June 2024, down by 32% compared to the previous year. The decline in profitability was mainly linked to a 13% decrease in selling prices, resulting in lower revenue by 7% to reach QAR 1.4 billion. The drop in group revenue was mainly linked to the decrease noted in average branded product prices, which declined by 13% compared to first half 2023. This translated unto a negative price variance of QAR 126 million in MPHC current net earnings compared to [ last year ]. Subdued product demand amid microeconomic (sic) [ macroeconomic ] uncertainties resulted in lowered commodity prices. On the other hand, sales volumes increased by 8% versus first half of 2023, mainly driven by higher sales volumes reported by the chlor-alkali segment, partially offset by lower sales volumes reported by the petrochemicals segment. This positive movement in sales volumes translated unto an increase of QAR 27 million in MPHC first half 2024 net earnings versus the same period of last year. While EBITDA for the current period amounted to QAR 627 million, it noted a decline of 21% compared to first half 2023 mainly due to lower revenues. EBITDA margins for first half 2024 reached 44% compared to 52% during last year, mainly affected by the decline in selling prices. Comparing financial performance of second quarter 2024, compared to first quarter 2024. MPHC bottom line profitability increased by 5% versus first quarter of 2024 mainly due to higher revenue, where an incline of 3% was noted on a quarter-on-quarter basis. The revenue increase was mainly linked to 2% higher selling prices; and marginally higher sales volumes by 1%, compared to first quarter of 2024, as a result of increased production volumes from the chlor-alkali segment, which was fully offsetting the decline in the petrochemicals segment linked to maintenance turnaround during the first quarter -- during the quarter. This translates to a positive volume variance of QAR 5 million caterer. Selling prices improved marginally by 2% compared to the previous quarter, mainly due to relatively enhanced supply-demand dynamics which translated to a positive price variance of QAR 15 million. Regarding the financial position, as exposed on Slide #15, liquidity remained robust with cash and bank balances standing at QAR 3.4 billion as of 30 of June 2024. The decline in cash and bank balances was mainly due to dividend payments for the financial year 2023, which is partially offset by positive cash flow generation during the first half of 2024. Total assets as of 30th of June 2024 amounted to QAR 16.8 billion, and total equity amounted to QAR 16.4 billion. Moving to segmental review, we will start with petrochemicals segment as covered in Slides #2021 till #2025 (sic) [ #21 to #25 ]. The segment's performance analysis for first half 2024 compared to first half 2023 revealed that petchem segment reported a net profit of QAR 289 million for the current period, representing a 42% decline from the same period of last year. The decrease in profitability was largely driven by lower revenue. Segment revenue for the first half 2024 declined by 15% compared to first half 2023, reaching QAR 1 billion. Lower selling prices and reduced sales volumes primarily drove this decrease. The drop in sales volumes was mainly due to a 12% reduction in production resulting from decreased plant availability. Additionally, product prices fell by 8%, reflecting deteriorating macroeconomic condition compared to the same period of last year. Regarding the segmental performance for second quarter 2024 compared to first quarter 2024. The segmental profits increased by 9% primarily due to a 4% rise in revenue. The revenue growth was driven by 6% improvement in selling prices as supply and demand dynamics in the polyethylene market greatly strengthened. Despite lower production, sales volumes only saw a marginal decline of 2% quarter-on-quarter basis. Chlor-alkali segment, moving on chlor-alkali segment as detailed on Slide 26 till 30. The chlor-alkali segment reported a net profit of QAR 36 million for the first half 2024, marking a 15% increase compared to the same period of last year. Although selling prices dropped by 6% due to the ongoing macroeconomic uncertainties, the segment saw a significant boost in sales volumes. This increase was driven by higher production levels supported by improved plant availability in chlor-alkali facilities. As a result, revenue surged by 31%, reaching QAR 383 million. Regarding the chlor-alkali segment performance quarter-on-quarter basis, profitability for second quarter remained flat compared to first quarter 2024, reflecting stable revenue levels. The increase in sales volumes was fully offset by decline in the average selling prices, resulting in comparable performance between the 2 quarters. I will now hand over to Rashid.

Thank you, Sami. I think that concludes the presentation, and we can open the floor for the Q&A.

Eli, you can go ahead and open for Q&A.

[Operator Instructions] Our first question comes from Seki Mutukwa from Ashmore.

Just questions relating to QVC, please. I was trying to just get a sense in that, by the middle of next year, should we expect that in the second half we would not be seeing any external VCM sales. It will all be PVC. And could you talk a little bit about what sort of ramp-up in utilization you may be expecting in the second half of the year of -- when that happens? And then a second question is just, in the second quarter, what did you observe in the market as sort of average PVC prices per tonne, please.

Thank you so much for your question. I think, in terms of QVC -- so basically, as you mentioned in the beginning -- so we are in the process of developing the PVC plant, so it is expected to start mid-2025, as you have explained. That will be the planned shipment. So far from the reports that we are receiving, there are no delays. And cash calls are planned as expected, so we do expect that -- the full VCM to be converted to PVC, as you highlighted. And that's the plan, so far. So, so far, we have invested around QAR 282 million in the PVC plant. That's the portion of Mesaieed in and the contribution [ in ] Mesaieed in this PVC plant, which is 55.2%. And we don't expect, at the moment, any delays. So we will give you more updates by the end of this year. And then we hope that this will add additional value to the shareholders of Mesaieed. For your second question, I think, for the PVC pricing. So we don't see any changes compared to the previous quarter. So PVC prices are almost stable. And this has been impacted as well by the pricing [ of VCM ]. So normally we follow this by the difference between the PVC pricing and the VCM pricing, which is stable. And it's always standing at specific level, which is around -- between USD 170 and USD 180. And I think -- this is in terms of pricing of PVC. Definitely this will have an impact on the net profits of QVC because that additional value will be impacted to the net profits. And we will save the transportation costs. We will save different kind of costs. That will be transferred directly unto the PVC production.

Our next question comes from [ Nikhil Phutane from CBFS ].

Well, just wanted to know in terms of your -- any plant shutdown for the second half of 2024? As you mentioned, in HDPE, some plant shutdown took place, 12%. Also I suppose you can provide us a trend in your VCM, your normal alpha olefins prices and caustic soda for second half. That will be welcome.

I will take the first part of the question and then my colleague Rashid will take the second part. So during the second half of this year, we do expect some plant shutdowns, especially the QVC plant. So this will be -- for Q3, it's an average 15 days. And Q4, it will be 11 days. So there are no plant shutdowns for the petchem segment. So the plant shutdowns will be mainly, for the petchem, in 2025. So we will have Q-Chem II with a plant shutdown of 45 days. That's -- will be planned during the last quarter of 2025. And then during 2026, we expect 40 days of plant shutdown in Q-Chem. That's for the first part. Rashid will give you some updates in terms of the evolution of pricing during the next half.

First, I have to clearly state that the company doesn't give any outlook. And this is based on reports we've read from the market. On the VCM side, you would see that the VCM prices have gradually been holding their levels across quarter-over-quarter. And the trajectory for those will depend on the evolution of the economy going forward. We've heard about initiatives taken at China level where China is trying to stimulate the economy, in particular the construction sector. That could provide some kind of a boost to the construction and could provide some kind of a boost for the use of PVC products, et cetera. And hence, it [ could provide, can support ] for the VCM. The downside would be if the inflation is higher than expected. The buyer confident is not regained. And the economy is -- will -- sort of doesn't move forward. That's kind of an upside or downside on the VCM. And I think, more or less, the same story would go for the petrochemical as well. It will depend how the economy will evolve in the future. Of course, if you have, let's say, a cut in the interest rate, that will give some kind of a kick to the consumer demand. And that could help the buying power to regain again, but at that stage -- it's difficult to predict what will be happening in the future and how those initiatives taken at China and at various global economy will evolve and how it will cascade to the supply-demand dynamics. I hope I answered your question.

Okay, so -- fine, sir. I mean okay. I just wanted to know. I mean you mentioned in your last slide in terms of a new plant which you are building up which has got to do with, I mean, a new salt plant project. I mean I just wanted to understand. What is this? I mean because you mentioned it is going to be largely for industry salt demand within the country, local demand of table salt. So yes. I mean I just wanted to understand. What is the need for this, in the first place? I mean having a joint venture with this. Because you do have a surplus amount of money on your balance sheet, of course, but is there any intention -- where exactly you've already secured demand for all this going forward? And what will be the time line for this? Can you give us an idea? Yes.

Okay, thank you for the question. This is Abdulla. So salt project is then a project that we are trying to produce a chemical salt within a state of Qatar. And the aim of it is to localize our need of the raw material for our operation. If you look at QVC, you will see that we import salt from different producer, to Qatar, while we have the opportunity here in Qatar to get that chemical salt from the seas. And from the -- Qatar has a very, I would say -- or the industrial city of Mesaieed has a good logistic place where we can allocate the salt project. So it's been decided that the salt project will be allocated in Umm Al Houl. So this is to give it a location where we can transport the product easily to our QVC operation. So basically we will -- having the advantage of having the chemical salt then produced in Qatar. We will be having the control over the prices. And we have engaged with the partner that -- they have all the know-hows and the technology to operate in Qatar. Good thing is that -- I would assume, that around [ 80 to 85 ] of that product will be sold in Qatar, so I think this is an opportunity for MPHC to invest in such projects. Further detail: This is at very early stages of discussion and negotiation with all partners. However, whenever we have a further detail or as [ the matter is then revolved ], we will update the market. Sami would like to say something...

Yes, to add on what Abdulla said. So as you know, salt is one of the raw materials for the production of caustic soda. And it's very important ingredient for the chlor-alkali production. So importing this kind of specific raw materials to Qatar -- so from what we have seen in the past -- so we have seen a huge increase in terms of pricing, a huge increase in terms of transportation costs. And then this could impact as well the profitability of the business, so that's one of the motivation as well. Since we have availability of, let's say, raw materials to produce salt, which is brine -- and this is available and it's easily available, so that will have a great impact. So first, to have good access to salt with reasonable price -- and then this will at least streamline the production costs for the chlor-alkali business going forward.

Okay. Given the fact that you mentioned about salt plant, I mean, can we expect this to be sooner than later? I mean, can we expect that time line of maybe 6 months? I mean given...

No, no, this is we are still in discussion. I think, as a listed company, we need to disclose any initial discussions regarding any projects; and this is why we have disclosed this. It's still at the initial stage. It will take time, so it cannot be done in the next 6 (sic) [ 6 months ] to 1 year time. So discussion will need to take place with the shareholders. Discussion will need to take place regarding the funding and regarding the technical aspect as well, so it's too early at this stage to give additional details, but the -- maybe the initial cost of the project -- so it's around USD 290 million. And additional information will be provided whenever we do any additional, let's say, step [ in this period ].

Our next question comes from [ Shain Agarwal from DFI ].

So just to follow up on this new salt plant project, can you offer us, how much does your salt feed currently constitute as a percentage of your revenues?

So at this stage, I think -- as a percentage of revenue, I don't think it's huge. So in terms of cost of raw material. Because salt is only one of the ingredients that we use in the caustic soda production, but it's not -- materiality is not huge, but -- so what we can confirm. So our consumption of salt represents around 50% of the announced capacity of the new project, so basically it's around 500,000 tons will be consumed at the chlor-alkali production, from the total capacity of 1 million.

All right, so the balance 50%, you will sell it in the open market.

Yes. It's available, so there are available buyers for this specific product in Qatar. And then remaining could be sold in the local market as well as outside.

Our next question comes from Seki Mutukwa from Ashmore.

Just a reminder, please, on the expiration dates on the sort of, well, JVs, please -- or maturity dates, particularly within Q-Chem and maybe even RLOC, if possible.

Yes. For the QVC, it's [ normally ] mid of 2026. For Q-Chem I and Q-Chem II, I think we -- it's still longer period. So the first one, the Q-Chem, will be around end of -- before 2030. And then the Q-Chem II, it's extended beyond [ 2030 ].

Okay.

I think for QVC it's been decided that MPHC would remain the shareholder. And it's there on the IR slide as well.

Thank you. As of right now, we don't have any pending questions from the attendees, so I'd now like to hand back over to the moderator for the final remarks.

If there are no further questions, we would like to thank Abdulla Yaqoob Al-Hay, Sami Mathlouthi and Rashid Hamad Al-Mohannadi for the results update and answering all the queries. And we look forward to speaking to you all for the third quarter results. I will hand over the call to Abdulla Yaqoob Al-Hay for his final comments.

Thank you all for joining us. Thanks a lot.

[ Thank you ] for attending today's call. You may now disconnect. Have a wonderful day.