SNB Cap expects Sipchem to post lower profit in 2022, 2023; downgrades stock to ‘Neutral’

Logo of Sahara International Petrochemical Co.

Sahara International Petrochemical Co. (Sipchem) is expected to post a 16% drop year-on-year (YoY) in 2022 net profit to SAR 2.9 billion, as product prices are likely to normalize gradually, SNB Capital said in a recent note.

Despite a positive outlook for methanol, the gradual normalization of product prices in 2022 and beyond will pressure the company’s profit.

Gross profit margin (GPM) is expected to shrink to 50.7% in 2022 from 55.1% in 2021 amid lower product prices. Sipchem incurred non-recurring losses of SAR 260 million in 2021, due to the amortization of some assets, which will limit profit decline on an annual basis.

The company’s sales revenue and profit are forecast to drop by 10.7% YoY and 28.5% YoY to SAR 7.8 billion and SAR 2.1 billion, respectively, in 2023. GPM is also seen to fall to 44.2% next year, on a drop in prices.

SNB Capital downgraded the stock from “Overweight” to “Neutral”, setting its target price at SAR 42.5, noting that expansion plans and better-than-expected prices are key upsides for the stock over the coming period.

Sipchem is weighing several expansion plans to leverage on the opportunities provided by Shareek program, the report issuer said, adding that new expansions and higher dividends are the key stock drivers.