Al-Rajhi Capital: “SABIC” profits Q2 hit highest in 11 years

Al-Rajhi Capital described SABIC’s results in the second quarter of this year as strong, noting that the company achieved the highest quarterly profits in about 11 years, specifically since the third quarter of 2011, adding that the net profit of 7.9 billion riyals was in line with estimates of 7.6 billion riyals, it exceeded the average expectations of analysts of 5.9 billion riyals.

Al-Rajhi Capital expected that SABIC’s profits would rise to 25.6 billion riyals by the end of this year 2022, at a rate of 11.3% from its profits in the year 2021, which was 23 billion riyals, suggesting a decrease in profits to 21.4 billion riyals in the year 2023, at a rate of 16.4% from the expected profits for the year 2022.

On the other hand, “Al-Rajhi Capital” lowered the target price for SABIC’s share to 107 riyals per share, with a recommendation of neutrality, adding, due to potential margin pressure amid a weak product spread and the global economic slowdown, the target price was lowered, noting that the risks are that the supply of New production capacity globally, unexpectedly lower oil and petrochemical prices, and unplanned plant closures are major downside risks, while major upside potential includes higher-than-expected margins, successful faster-than-expected commercial launch of future expansion projects, and a recovery in global demand .

Al-Rajhi Capital indicated that (SABIC) has a cautious outlook for the second half of 2022, mainly due to fears of a global economic slowdown amid the shutdown in China and continued supply chain problems, adding that average polymer prices are currently trending downward by 13-18%.

Moreover, raw materials prices, despite the recent decline, remain at relatively high levels, indicating weak product margins and thus profits in the near term. However, the company’s ability to control costs, along with the synergies expected through the Aramco deal, will likely offset these effects to some extent. Despite potential earnings pressures in the second half of 2022, the company is expected to increase its annual dividend to 4.75 riyals from 4 riyals, supported by strong cash flow generation and capex control.

According to “Al Rajhi Capital”, (SABIC) recorded a record quarterly revenue of about 56 billion riyals (+ 6.3% on a quarterly basis) in the second quarter, which is largely in line with estimates of 57 billion riyals, adding that the sequential growth was mainly driven by Average product prices increased by 3% sequentially and sales volume increased by 3% q/q (primarily agri-nutrients).