Sipchem's Q1 misses estimates, says Riyad Capital

Saudi International Petrochemical Co. (Sipchem) reported a net profit of SAR 151.4 million in Q1 2018, missing both Riyad Capital expectations and market consensus of SAR 171.5 million and SAR 178.0 million respectively, the investment bank said in a recent note.

Revenue came in at SAR 1.17 billion, in-line with forecasts of SAR 1.25 billion.

The petrochemical firm’s top-line declined 2 percent year-on-year (YoY) and 8 percent quarter-on-quarter (QoQ) as management reported lower volumetric sales attributed to unscheduled shutdowns at the Diol and Acetic Acid plant.

Gross margins came in at 35.4 percent for the quarter, versus 29.4 percent in Q1 2017 and 33.3 percent in Q4 2017, as higher methanol and vinyl acetate monomer (VAM) prices continued to expand margins.

Methanol prices rose 13 percent YoY and 5 percent QoQ in Q1, while VAM prices increased 4 percent QoQ and 38 percent YoY.

“We had earlier indicated that there is recovery cycle in methanol and VAM, which could raise prices further. In addition we expect the methanol efficiency enhancement program to drive better yields from 2019 and expected to drive capacity up by 40 percent,” the investment arm of Riyad Bank said.

Riyad Capital raised its target price on the stock to SAR 24 from SAR 21 and maintained a Neutral rating.

"We expect the earnings momentum achieved in 2017 to continue in 2018 as rising oil prices have a similar effect on Sipchem product prices,” the brokerage said.