Advanced Petrochemical Company (Advanced) announced its estimated financial results for the period ending June 30, 2026, which showed a shift towards recording net losses despite achieving growth in total revenues, as net revenues for the current quarter increased by 18% compared to the same quarter of the previous year, driven by a 34% increase in net sales prices, despite a 12% decrease in sales volumes due to a 27% decline in production volumes resulting from a shortage of propane supplies during April and May 2026.

On a semi-annual basis, revenues grew by 45% due to a 37% increase in sales volumes after the commissioning of the two polypropylene production lines for Advanced Polyolefins in the second half of 2025, along with an improvement in net sales prices by 6%.

Conversely, the recording of losses was directly pressured by a 40% and 21% increase in propane and purchased propylene prices respectively compared to the same quarter, and by 46% and 15% compared to the previous quarter, coinciding with the start of loading the income statement with depreciation expenses, fixed costs, and financing costs for Advanced Polyolefins, in addition to the current quarter being affected by one-time non-cash depreciation expenses of nearly 20 million riyals due to the advancement of part of the periodic maintenance work for 2027 to take advantage of the period of reduced supplies, which began to return to normal levels in June 2026.

The company stated that these statements are estimates prepared by management and have not yet been subjected to external review, with the report issued with a unmodified opinion.

Students from Al Yamamah University discussed the dimensions of these results and the structural implications of costs as follows:

Maintenance and operational efficiency axis

Student "Ghadah Alwallan" @Ghadah Alwallan opened the analysis by focusing on the efficiency of crisis management, saying: "I was struck by the company's decision to advance part of the maintenance work to this quarter.

It is true that it raised expenses, but since production was low to begin with, it may be a good utilization of this time.

In my opinion, what is important now is to follow up on the results of the coming quarters to see if the decision actually helped improve the company's performance or not."

Profit margin equation and challenges of converting sales growth

Student "Rimas Almashali" @Rimas Almashali commented from a financial and strategic perspective, saying: "In my opinion, the results confirm that increased revenues alone are not enough to achieve profitability.

The company faced clear pressures from declining production and rising feedstock costs, "which are the raw materials used in production, primarily propane and propylene," in addition to costs associated with new projects, so the impact of costs was greater than the effect of rising sales prices.

If propane supplies stabilize as the company indicated, the focus in the coming periods will be on management's ability to improve margins and convert revenue growth into sustainable profits, not just an increase in sales."

Structural pressures and the impact of financing and depreciation expenses

Student @Shahad Al-Muhaysin continued the analysis by pointing out the interrelated factors affecting financial performance, saying: "In my opinion, the losses were the result of the convergence of multiple factors at the same time, not just due to falling prices.

It is true that the company benefited from rising sales prices and achieved revenue growth, but declining production due to a shortage of propane supplies, along with rising feedstock costs, had a greater impact on profitability.

The company also began to bear expenses for new projects such as depreciation and financing costs, which pressured the results at this stage."

Temporary reasons for the loss and opportunities for a return to profitability

Student "Jumana Al-Shehri" @Jumana Al-Shehri concluded the analysis by saying: "The loss recorded by the company is logical and justified because the cost of the raw material (propane) jumped by 40%, which overwhelmed the effect of rising sales prices, and with low production due to supply shortages, fixed costs became a significant burden.

However, frankly, the decision to advance maintenance for 2027 was a very smart operational move by management, as they took advantage of the factory's forced downtime and completed their work to ensure continued operation next year without interruption.

As for the expenses of the new factory, this is normal for any project at the beginning of its operation, as it incurs depreciation and loan expenses, which is a matter of time and will be covered with increased sales.

In short, my outlook for the next quarter is very optimistic because all the reasons for the loss were temporary circumstances, and with the return of supplies to normal in June and the preparation of the factory, it is likely that the company may return to profitability."

A negative signal for the sector: "Advanced" results contradict expectations

Professor Abdulaziz Khrais pointed out that Advanced Petrochemical Company opened the second quarter results for the sector by recording losses of 98 million riyals, which gives an initial negative signal to other companies in the sector, especially since these results were worse than the average analyst expectations, which estimated losses at about 62.56 million riyals, making it the second worst results in the company's history after the fourth quarter of 2024.

He added, clarifying that despite the increase in revenues during the first half of the year, it recorded losses due to operational expenses related to Advanced Polyolefins, and the decline in propane supplies during April and May 2026, which indicates that the effects of the geopolitical crisis affected companies in the sector.

He concluded his analysis by noting that these results will prompt many to hesitate before being overly optimistic about the petrochemical sector benefiting from rising oil prices, until the picture becomes clearer with the release of results from other companies.

Intersection of geopolitical crises with structural burdens of the transitional phase

In an analytical reading of the company's performance, financial and economic analyst "Hamad Alsaeed" @Hamad Alsaeed stated: Advanced Petrochemical Company recorded a net loss of 98 million riyals in the second quarter of 2026, despite revenue growth of 18.5% year-on-year to 827 million riyals, supported by a 34% increase in average net selling prices of final products, and the full commercial operation of the Advanced Polyolefins complex. However, operating profit fell by 81.5% to 17 million riyals, under pressure from two simultaneous factors. The first is the sharp rise in feedstock costs, as propane prices jumped by 40% and purchased propylene by 21%. The second is the start of loading the income statement with the burdens of the new project from depreciation and fixed operating costs and financing costs after entering the commercial operation phase, which are structural burdens that were not present in the comparative period.

In line with what we pointed out in our previous report titled: Second Quarter Earnings Season: An Analysis of Profitability Drivers and Growth Margins, that the petrochemical sector will be the most vulnerable to the repercussions of the geopolitical crisis, feedstock supplies declined by 27% as a result of these tensions, which prompted management to advance the scheduled periodic maintenance originally set for 2027 to be carried out during the current period, enhancing asset readiness and production continuity.

From an accounting perspective, according to International Accounting Standard (IAS 16), major maintenance costs are capitalized as assets and their effect is gradually consumed over the period until the next maintenance, which confines their immediate effect to reduced operating rates and increased fixed cost per unit produced.

Thus, the results of the quarter reflect a transitional phase in which the company bears all the structural burdens of the new project before it contributes to profitability, and the pace of margin recovery remains contingent on feedstock price trends and improved operating rates during the second half.

Disclaimer: (This material was prepared under the supervision of the editor of “Yamamah Insights” and with the assistance of artificial intelligence tools for financial education purposes, and does not constitute a recommendation to buy, sell, or hold any security, and it reflects the opinions of its authors and not the platform's opinion).