SABIC’s Q3 earnings in-line with estimates, says Riyad Capital

Saudi Basic Industries Corp.’s (SABIC) net profit of SAR 6.1 billion for the third quarter came in-line with Riyad Capital and market consensus of SAR 5.9 billion, the research firm said in an earnings review.

Revenue came in at SAR 43.7 billion, up 13 percent year-on-year (YoY) and 1 percent quarter-on-quarter (QoQ), nearly as projected.

“It was a pleasant surprise to observe positive quarterly revenue growth in light of the general unfavorable market conditions in Q3,” the firm said.

Polypropylene decreased by 1 percent QoQ, but rose 13 percent YoY. Polyethylene fell 3 percent QoQ but increased 15 percent YoY. Urea prices were also on the upswing rising by 33 percent YoY to an average of $301 per ton.

Gross margins shrank to 34 percent in Q3 from 35 percent a year earlier and 37 percent in Q2 on higher feedstock prices.

Gross profit rose by 10 percent YoY but dropped 6 percent QoQ to SAR 14.9 billion.

Operating profit gained 17 percent YoY, but fell 8 percent QoQ to SAR 10 billion.

Operating margins declined by 200 basis points QoQ but rose by 100 basis points from a year earlier.

Yansab and Safco, SABIC’s subsidiaries, reported earnings close to market expectations, while Kayan missed estimates.

Gross margins for Yansab remained unchanged from last year’s margins but fell softly from Q2. Kayan’s margins were also similar to Q3 2017 but fell sharply from last quarter. Safco’s margins noticeably exceeded margins of last year and last quarter, reaching levels similar to its heydays, the report said.

SABIC’s “earnings per share (EPS) of SAR 2.03 was not far from our and market consensus of SAR 1.97. Q4 is usually turnaround season and scheduled shutdowns will take place for Yansab’s MEG plant and for a couple of Safco’s plants, to name a few,” the report said.

Feedstock prices are not expected to weaken in Q4 as winter sets in. These factors could further dampen profits in Q4 or at least match Q3’s profit, it added.

Riyad Capital maintained a “Neutral” rating on the stock with a target price of SAR 124 per share.