07 December 2009
Saudi Arabia's petrochemicals income is expected to plunge in 2009 due to lower products prices but will sharply rebound in 2010 after the commencement of a major joint venture with China, a Kuwaiti investment centre said.
Global Investment House (GIH) said it had revised up its early projections about the earnings of the Gulf kigndom's petrochemicals giant, Sabic, for 2009 because of better products prices and capacity utilisation.
But it noted that the 2009 income would be sharply lower than that achieved in 2008, when oil prices climbed to their highest average of around $95 a barrel.
From around SR22 billion (Dh21.6bn) in 2008, Sabic's net profits are projected to plunge to nearly SR7.6bn in 2009, GIH said in a study.
But the profits could surge to nearly SR18.1bn in 2010 and continue their climb in the following two years, the report said.
It said that despite what it described as the uncertain economic environment, Sabic is consistently expanding its operational and production activities. It referred to its recent announcement of two joint ventures with China's Sinopec and Albemarle Corporation.
Sinopec will have a production capacity of 3.2 million tonnes per year and is expected to come on line in the first quarter of 2010.
Albemarle Corporation will have a production capacity of 6,000 tonnes of tri-ethylene aluminum (TEA), and is set to come online in 2012.
"The joint venture with Sinopec is likely to give Sabic the ability to overcome entry barriers and deal with competition effectively in the Chinese market. In addition, tie-up with a local producer will give the company the necessary support and knowledge to sail smoothly in the high growth Chinese market. The Chinese venture will increase the overall capacity of the company by 2.8 per cent," it said.
"Going forward, we believe that the company capacity utilisation will grow modestly to reach 77-82 per cent in 2012 compared to 60-65 per cent in 2009 due to an expected slow pace of economic recovery.... based on the improvement in product prices and capacity utilisation during the third quarter of this year, the company is expected to post sales revenue of SR99.5bn in 2009, which is 1.6 per cent higher than our previous forecast."
GIH said it had also updated crude oil prices, capacity utilisation and commencement dates of new capacities in 2010.
"We have also incorporated the delay in Yasnab plant, which is not expected to come online in 2009. We now expect sales revenue to increase at an annual growth of around 3.3 per cent during 2009-2012 against our previous estimate of negative growth of 1.5 per cent during the same period," the report said.
"Despite the upward revision in sales revenue for 2009, we expect the company to post profitability of SR7.6bn in 2009, a downward revision by SR3.3bn from our previous estimate.
The major reasons for such a move are downward revision in other income by SR0.8bn from our previous estimate, expected higher depreciation, which has pushed up our cost of sales estimate by SR1.3bn, higher minority interest to SR7.1bn from previous estimate of SR6.6bn, increase in administration and general expenses estimate by SR0.2bn to SR8.9bn from our previous estimate and an increase in financial cost to SR3.1bn from our previous estimate of SR3.0bn."
GIH said it expects Sabic's profitability to increase at an annual growth rate of 5.6 per cent during 2008-2012 compared to the previous estimate of 1.8 per cent.
"The major reasons of the upward revision in the company's future profitability are the improved capacity utilisation, higher long-term price range and the commencement of the Chinese joint venture, which is scheduled to operate at 100 per cent utilisation levels."
Its forecasts showed Sabic's net income would climb to around SR18.1bn in 2010, nearly SR21.6bn in 2011 and a record SR27.4bn in 2012.
Gross profits could jump from SR26.8bn this year to SR39.9bn in 2010, around SR47.2bn in 2011 and SR58.6bn in 2012.
Total revenue stood at SR150.8bn in 2008 and is expected to dip to nearly SR99.5bn in 2009 before rebounding to SR129.7bn in 2010. The company's assets were estimated at SR271.7bn at the end of 2008 and are projected to grow to nearly SR292.9bn in 2009, around SR328bn in 2010, about SR352.1bn in 2011 and nearly SR379.8bn in 2012.
Shareholders equity stood at SR102.9bn at the end of 2008 and were forecast to reach to SR107.5bn at the end of 2009, SR123.8bn at the end of 2010, SR143.3bn in 2011 and SR165.3bn in 2012.
Saudi Arabia's petrochemicals income is expected to plunge in 2009 due to lower products prices but will sharply rebound in 2010 after the commencement of a major joint venture with China, a Kuwaiti investment centre said.
Global Investment House (GIH) said it had revised up its early projections about the earnings of the Gulf kigndom's petrochemicals giant, Sabic, for 2009 because of better products prices and capacity utilisation.
But it noted that the 2009 income would be sharply lower than that achieved in 2008, when oil prices climbed to their highest average of around $95 a barrel.
From around SR22 billion (Dh21.6bn) in 2008, Sabic's net profits are projected to plunge to nearly SR7.6bn in 2009, GIH said in a study.
But the profits could surge to nearly SR18.1bn in 2010 and continue their climb in the following two years, the report said.
It said that despite what it described as the uncertain economic environment, Sabic is consistently expanding its operational and production activities. It referred to its recent announcement of two joint ventures with China's Sinopec and Albemarle Corporation.
Sinopec will have a production capacity of 3.2 million tonnes per year and is expected to come on line in the first quarter of 2010.
Albemarle Corporation will have a production capacity of 6,000 tonnes of tri-ethylene aluminum (TEA), and is set to come online in 2012.
"The joint venture with Sinopec is likely to give Sabic the ability to overcome entry barriers and deal with competition effectively in the Chinese market. In addition, tie-up with a local producer will give the company the necessary support and knowledge to sail smoothly in the high growth Chinese market. The Chinese venture will increase the overall capacity of the company by 2.8 per cent," it said.
"Going forward, we believe that the company capacity utilisation will grow modestly to reach 77-82 per cent in 2012 compared to 60-65 per cent in 2009 due to an expected slow pace of economic recovery.... based on the improvement in product prices and capacity utilisation during the third quarter of this year, the company is expected to post sales revenue of SR99.5bn in 2009, which is 1.6 per cent higher than our previous forecast."
GIH said it had also updated crude oil prices, capacity utilisation and commencement dates of new capacities in 2010.
"We have also incorporated the delay in Yasnab plant, which is not expected to come online in 2009. We now expect sales revenue to increase at an annual growth of around 3.3 per cent during 2009-2012 against our previous estimate of negative growth of 1.5 per cent during the same period," the report said.
"Despite the upward revision in sales revenue for 2009, we expect the company to post profitability of SR7.6bn in 2009, a downward revision by SR3.3bn from our previous estimate.
The major reasons for such a move are downward revision in other income by SR0.8bn from our previous estimate, expected higher depreciation, which has pushed up our cost of sales estimate by SR1.3bn, higher minority interest to SR7.1bn from previous estimate of SR6.6bn, increase in administration and general expenses estimate by SR0.2bn to SR8.9bn from our previous estimate and an increase in financial cost to SR3.1bn from our previous estimate of SR3.0bn."
GIH said it expects Sabic's profitability to increase at an annual growth rate of 5.6 per cent during 2008-2012 compared to the previous estimate of 1.8 per cent.
"The major reasons of the upward revision in the company's future profitability are the improved capacity utilisation, higher long-term price range and the commencement of the Chinese joint venture, which is scheduled to operate at 100 per cent utilisation levels."
Its forecasts showed Sabic's net income would climb to around SR18.1bn in 2010, nearly SR21.6bn in 2011 and a record SR27.4bn in 2012.
Gross profits could jump from SR26.8bn this year to SR39.9bn in 2010, around SR47.2bn in 2011 and SR58.6bn in 2012.
Total revenue stood at SR150.8bn in 2008 and is expected to dip to nearly SR99.5bn in 2009 before rebounding to SR129.7bn in 2010. The company's assets were estimated at SR271.7bn at the end of 2008 and are projected to grow to nearly SR292.9bn in 2009, around SR328bn in 2010, about SR352.1bn in 2011 and nearly SR379.8bn in 2012.
Shareholders equity stood at SR102.9bn at the end of 2008 and were forecast to reach to SR107.5bn at the end of 2009, SR123.8bn at the end of 2010, SR143.3bn in 2011 and SR165.3bn in 2012.
By Nadim Kawach
© Emirates Business 24/7 2009
