SABIC misses Q4 estimates on lower operating rate, impairments: NCBC

Saudi Basic Industries Corp. (SABIC) fourth-quarter 2017 net profit of SAR 3.67 billion was weaker that NCB Capital’s and consensus estimates of SAR 5.4 billion, mainly due to lower operating rates that were impacted by shutdowns and impairments of SAR 486 million, the research firm said in an earnings review.

Gross margin stood at 31.1 versus a forecast of 32 percent in Q4. Earnings before interest and taxes (EBIT) came in at SAR 6.7 billion, up 8 percent YoY but 21.8 percent lower than NCB Capital’s estimate due to impairments at Hadeed and Ibn Sina. 

“Hadeed impairment stood at SAR 350 million, impacted by the construction slowdown. SABIC’s share in Ibn Sina impairment was SAR 136 million,” the report said.

The Q4 revenue grew 8.2 percent year-on-year (YoY) to SAR 40.6 billion, but were lower than NCB Capital’s estimates by 6.9 percent.

Going forward, NCB Capital expects SABIC to finance the estimated SAR 9.4 billion investment under its plans to acquire 24.99 percent of Switzerland-based Clariant AG through debt, increasing SABIC’s debt to SAR 68 billion and its debt-to-equity ratio to 0.42 from 0.37.

“We believe the long-term goal of this acquisition is to increase SABIC’s ability to improve its added value downstream production. However, the impact of this transaction on SABIC profitability will be limited,” the report said.

NCB Capital is “neutral” on SABIC stock, with a target price of SAR 98.4.

“A strong balance sheet and higher oil prices are the key positives. However, SABIC is trading at a 2018E P/E of 16.7x, higher than peers average of 15.4x, offering a limited upside,” it said.