Sipchem’s Q4 profit in-line with estimates, says Al Rajhi Capital

Saudi International Petrochemical Co. (Sipchem) fourth-quarter net profit of SAR 164 million came in-line with Al Rajhi Capital’s forecasts of SAR 159 million, the research firm said in an earnings review.

“Q4 was one of the best quarters for many reasons - no shutdown, pick up in operating rates post shutdown in the last quarter, recovery in methanol and vinyl acetate monomer (VAM) prices – all resulting in one of the highest profits since the sharp decline in oil prices around mid-2014,” the report said.

Revenue grew 35 percent year-on-year (YoY) in Q4, as methanol and VAM prices rose 20 percent and 55 percent, respectively.

Gross profit increased by 83 percent, helped by operating leverage, due to fixed input costs for methane.

With a high operating leverage, the methanol segment is likely to have contributed more than 70 percent of the company’s gross profit in Q4.

“We remain positive on Sipchem, given its continued healthy performance, its improving efficiencies, cost saving measures and increase in production,” Al Rajhi Capital said.

The firm expects Sipchem to pay a SAR 0.65 per share dividend for 2018, given its improving free cash flow, declining debt and robust cash balance.

Looking ahead, key upside risks for the company include a rise in methanol prices and higher than expected operating efficiencies, while downside risks may comprise unexpected disruption at the company’s upstream operations.

Al Rajhi Capital maintained a “Neutral” rating on the stock and revised the target price to SAR 18.5 per share.