Sipchem’s Q2 beat estimates on higher selling prices: Aljazira Cap

Saudi International Petrochemical Co.’s (Sipchem) net profit for Q2 2017 came above Aljazira Capital and market censuses profit estimates of SAR 39.40 million and SAR 36.50 million respectively, the brokerage said in a recent note.

The petrochemical firm posted a net profit of SAR 59.80 million, increasing more than five times year-on-year (YoY).

The strong performance is primarily attributed to an increase in average selling prices and higher sales volumes, despite the impact of three plants being shut down for 20 days. Other contributing factors were higher production efficiency and a decline in OPEX.

Sales in Q2 stood at SAR 918.2 million, below Aljazira Capital’s estimate of SAR 1.084 billion.

The brokerage expects improved performance in the coming quarters due to expected higher operating rate and a long-term optimistic outlook for the price of methanol, which is the key catalyst to support the company’s downstream prices.

Gross profit came in at SAR 281.1 million, well above Aljazira Capital’s estimates of SAR 255.5 million, while gross margin increased to 30.62 percent in Q2 2017.

The brokerage remained ‘Overweight’ on the stock with a revised target price of SAR 19.50.

“We believe that the plants shutdown in Q2 2017 would have a positive impact on the overall performance and further improvement in operating rate in H2 2017 and onward,” Aljazira Capital said, adding that it expects the company to continue to focus on production efficiency and cost optimization to mitigate the impact on performance.

Sipchem is expected to post SAR 405 million in net income for FY 2017, surging more than five times (478 percent) YoY.