Riyadh-Mubasher: Saudi Arabia’s petrochemical sector is expected to report a combined Q4-15 net profits of SAR 5.0 billion, implying 23% quarter-on-quarter and 14% year-on-year declines, said Saudi Fransi Capital (SFC) in a recent report.
While 9 out of the 10 companies under coverage should post sequential declines of varying magnitude, decline for Advanced/Petrochem at 16% quarter-on-quarter is expected to be at the lower end in the sector.
“While we expect Kayan to generate net profits after three consecutive losses, net profits of SAR 73 million on a revenue base of SAR 2.1 billion is largely inconsequential,” the research firm said.
Given a volatile product price environment, while earnings volatility is unsurprising, it can be exacerbated by plant shutdowns in case of SIIG, Sipchem and Chemanol.
Furthermore, due to decline in crude price over the previous six months, balance sheets may be carrying some higher cost inventory.
Since this is the last quarter of the year, SFC would not be surprised to see some inventory write-downs (not included in our estimates).
SFC maintained a ‘Buy’ rating on SABIC, Advanced, Yansab, Sipchem and SIIG. It also reiterated a ‘Hold’ rating on Petrochem, Sahara, Tasnee and Kayan, and a ‘Sell’ rating on Chemanol.
“We see Advanced as the best positioned among Saudi petchem players in a low oil price environment. It has a resilient pass-through model as 100% of its feedstock is oil based (30% discount to market) meaning a fall in crude oil price lowers its feedstock cost (around 85% of cash cost base) and to a large extent offsets the decline in product prices,” the research firm said.
After underperformance in Q3-15, petrochemical stocks outperformed Tadawul in Q4-15 despite lower crude price and lower product prices.
