Kazanorgsintez welcomes new year with growth of salaries and shares
Kazanorgsintez PJSC has published its quarterly report for the third quarter of 2019. Compared to the same reporting period last year, there have been changes in the structure of commodity production and in the cost structure. Meanwhile, experts predict a growth of the company's shares in the long term. Read the details in the material of Realnoe Vremya.
Capitalization has returned to the level of last year
Kazanorgsintez PJSC has summed up the results of work for the third quarter of 2019. The market capitalization of the company as of September 30 amounted to 174,5 billion rubles. After the peaks of the late 2018 — early 2019, this indicator has actually returned to the level of September last year.
According to previously published statements under Russian Accounting Standards (RAS), the revenue of Kazanorgsintez for 9 months exceeded 58,2 billion rubles. The indicator has remained almost at the same level compared to the results for the same period last year, showing a slight decrease of 3%. Profit for the first three quarters of this year amounted to 11,7 billion rubles.
Impact of payroll growth and energy prices
For 9 months of this year, the cost price increased by 3,7% and amounted to 37,1 billion rubles. The company explains the change in the index by the conventional increase in energy cost. However, thanks to the energy efficiency improvement programme, Kazanorgsintez manages to restrain the pace of this growth. The share of energy costs in the total cost structure has increased by only 0,3% compared to last year.
Another factor affecting the increase in cost has been an increase in labour costs. Its share has increased from last year's 8,7% to 9,8%. The payroll for the first 9 months of this year amounted to almost 4,4 billion rubles. This is by 24% more than in the 9 months of last year (by 560 million rubles in absolute terms).
At the same time, the average number of employees has remained the same — 8,300 people. Let us remind that Kazanorgsintez indexed wages twice during the year. In August 2018, the average growth was 11%. In July 2019, the salaries to the largest group of employees — workers of the enterprise — were raised by 30%. The percentage increase in the salaries of specialists and middle managers then ranged from 3% to 10%.
For 9 months of 2019, social contributions were also increased. Their share in the cost structure have increased from last year's 2,8% to 3,1%.
The potential of the PC market
The changes have affected the structure of commodity production. The share of revenues from the sales of polycarbonates of PJSC Kazanorgsintez in the total volume has decreased from 17,4% to 10,8%, and in absolute terms — from 10,6 to 6,3 billion rubles. Anton Debabov, an expert on polycarbonate market, the development director at Karboglass, explained the decline in demand in the second half of the year by seasonality. According to him, the need for polycarbonate always increases in March-April.
“We cannot say that the sales have fallen significantly compared to last year. There has been a noticeable decrease when polycarbonate became more expensive than PMMA (polymethyl methacrylate, or plexiglass — editor’s note) and began to be replaced, for example, as a material for noise screens. I warned about the likelihood of this scenario a year ago but was never heeded. Short-term speculative sentiments, unfortunately, often prevail over the strategic planning of the industry development. The prices really decreased in comparison with the previous period, but considering that they had dramatically grown earlier, now the price just returned to a more common range,” said Anton Debabov.
Also, the price reduction has been influenced by the situation on the world market, namely the commissioning of new capacities. Kazanorgsintez, being the monopolist in the Russian polycarbonate market, cannot ignore the world trends, as it supplies raw materials abroad and monitors the import of raw materials to Russia.
“The main problem is the passive attitude of the producers of raw materials to the Russian market. For European companies, our market remains secondary. In addition, in the world, the main consumers of PCs are companies from the electronics and mechanical engineering industries, but in our country — from the construction industry. In Europe, the construction segment has long reached the ceiling. In Russia, without the support of the main beneficiaries — producers of raw materials, it is extremely difficult to develop the construction market. I hope Kazanorgsintez will begin to take steps in this direction. We have all the opportunities for this now. The consumption of polycarbonate in the construction market in Russia can be doubled,” said Anton Debabov.
The increase in the share of LDPE and HDPE
Meanwhile, the share of the main products of Kazanorgsintez — low-density polyethylene (LDPE) — has increased from 18% to 19,9% (from 10,8 to 11,6 billion rubles in absolute terms). The share of high-density polyethylene (HDPE) has increased even more — from 49,9% to 54,6% (from 30,0 to 31,8 billion rubles in absolute terms). In 2019, Kazanorgsintez felt the same serious drop in prices for HDPE, as well as for polycarbonates. However, due to the larger capacity of the HDPE market due to the diversification of the product line, the company was able to increase sales in this direction.
Earlier, Realnoe Vremya reported that the domestic petrochemical market remains stable in general. The production volumes of polyethylene of various brands for 9 months of the current year amounted to almost 1,35 million tonnes, which is slightly more than for 9 months of the previous year (just over 1,34 million tonnes).
Kazanorgsintez is actively developing the brand range. Last year, the company received an international certificate of ISO 9080 conformity for the brand PE2NT11-9, which in 2019 opened new markets for this product. In April of this year, the company brought to the market two brands of metallocene linear low-density polyethylene.
Kazanorgsintez’s shares are forecast to grow in the long term
Meanwhile, the shares of Kazanorgsintez on the stock market are showing a growth. Although experts note the restrained interest of investors in the securities of the companies in the petrochemical sector.
Anna Bodrova, a senior analyst at Alpari information-analytical centre:
“This year, the share price of Kazanorgsintez has slightly increased — by 5% from the beginning of the year to the current moment. The stock showed a sharp spike in volatility in early October, but a week later, market volumes returned to their usual levels.”
In general, investors this year have a very reserved attitude in the securities of the companies in the petrochemical sector. This may be due to a reduction in consumer demand for their products, and with vague prospects for the development of the sector in general.
The technical picture of trading in Kazanorgsintez’s securities is that the medium-term trading corridor is lateral, while the global long-term trading trend is growing. At the same time, the growth dynamics are very restrained and cautious. In 2020, the company's securities, provided that there are no stresses inside the enterprise and a calm external background, can grow at about the current rate, 4-6% per year.