SABIC’s Q1 earnings in line with estimates on higher sales: Aljazira Cap

Saudi Basic Industries Corp.’s (SABIC) net profit for the first quarter of 2018 was only slightly lower than Aljazira Capital and consensus estimates of SAR 5.65 billion and SAR 5.6 billion, respectively, the financial advisory firm said in an earnings review.

The petrochemicals company has reported a 5.4 percent year-on-year (YoY) increase in Q1 earnings at SAR 5.51 billion.

Aljazira Capital said the YoY improvement in earnings can be attributed to higher average sales prices and volumetric sales, lower-than-expected operating expenses (OPEX), lower zakat and income tax, and improved performance of Ibn-Rushed/Hadeed.

However, SABIC’s better-than-expected sales and gross margin were offset by an increase of SAR 1.1 billion in other expenses due to strategic restructuring initiatives, which aim to increase productivity and lowering the cost structure.

Lower production cost in Q1 2018 led to gross margin of 34 percent, versus Aljazira Capital’s estimates of 33.7 percent.

“SABIC’s implementation of cost efficiency since 2016 continue leading to a strong upsurge in the gross margin for the last quarters,” the report said.

“However, gross margin during FY2018 is expected to be slightly better compared to FY2017 due to improved performance of Ibn-Rushed/Hadeed and the dramatic change on the total downstream spreads,” it added.

SABIC is expected to post SAR 23.1 billion in net income for FY2018, indicating an increase of 25.8 percent YoY, supported by better product prices, improved oil fundamentals and expected stopping of Ibn-Rushed provisions.

Aljazira Capital expects SABIC to raise its dividend payment to SAR 4.5 in 2018 from SAR 4.2 last year.

The advisory firm held “neutral” recommendation on SABIC, with a target price of SAR 107 per share.