GCC Petrochemicals performed "significantly well compared to last year", report says

Stronger oil prices drove petrochemicals to perform better in 2018

  
GCC Petrochemicals performed "significantly well compared to last year", report says

Shares in petrochemical companies in the six member states of the Gulf Cooperation Council (GCC) performed better this year than in 2017 and the outlook looks decent for 2019, according to a report released this week.

Ubhar Capital said in a report sent to the media on Monday that the relatively better performance of oil prices this year led petrochemical shares to have a stronger 2018 compared to 2017.

“Overall, oil price (Brent) now average at USD 72.61/bbl (barrel) in 2018 compared to 2017 average of USD 54.8/bbl,” the report said.

“With next year expectation of oil price being in the range of USD 60-70 / bbl. from various international bodies, the outlook of GCC petrochemical sector looks decent but could be tad lower than what is expected in 2018,” the report added.

Oil prices rose sharply in 2018, reaching highs of $86 per barrel in October as market participants priced in United States sanctions on Iran scheduled to start in November.

But the pace was not sustainable as the U.S. said early in November that it will temporarily allow eight importers to keep buying Iranian oil, dragging oil prices lower.

Earlier this month, the Organization of the Petroleum Exporting Countries (OPEC) agreed to cut production by 1.2 million barrels per day starting in 2019.

After a two-day meeting in Vienna, the producer group agreed to curb output by 800,000 barrels per day from January, while non-OPEC allies will contribute an additional 400,000 barrel per day of cuts.

The OPEC decision supported oil prices, with Brent now trading near $62 per barrel, up from the $60 per barrel price seen last week before the OPEC decision.

The petrochemical sector in the GCC benefited during 2018 from stronger oil prices.

“In 9M18 (first nine months of 2018), earnings of GCC petrochemical companies stood at USD 7.57bn compared to full year 2017 earnings of USD 7.45bn, higher by 2%,” the Ubhar Capital report said.

“With one more quarter to go and current 4Q18 (fourth quarter of the year 2018) average oil price being higher than similar period last year at USD 72.3/bbl. (USD 61.5/bbl. in 4Q17), petrochemical sector of GCC is set to benefit and is estimated to report net income growth of 48.0% to USD 2.5bn in 4Q18 (USD 1.7bn in 4Q17).”

SABIC

Petrochemical giant, Saudi Basic Industries Corporation (SABIC), posted a third quarter (Q3) 2018 net profit after zakat and tax of 6.1 billion Saudi riyals ($1.6 billion) versus 5.79 billion Saudi riyals a year ago.

Ubhar Capital said that SABIC is estimated to report net income of 6.08 billion Saudi riyals for the fourth quarter (Q4) of 2018 compared to 3.70 billion Saudi riyals in Q4 17.

“Higher oil prices along with better earning expectation of its subsidiaries are expected to aid the company in posting higher earnings growth in the coming quarter,” the report said.

According to data from Eikon, one analyst has a 'strong buy' rating on the stock while three analysts have a 'buy' rating, eight analysts have a ‘hold’ rating and one analyst has a ‘sell’ rating.

The company’s stock price has added close to 18 percent so far this year, and was last down 0.83 percent by 14:38 GST on Monday.

SAFCO

Saudi Arabia Fertilizers Company (SAFCO) posted a third quarter (Q3) 2018 net profit after zakat and tax of 522.2 million Saudi riyals, compared to 188.4 million Saudi riyals a year ago.

Ubhar Capital estimates the company to post earnings of 487 million Saudi riyals in Q418, compared to 63 million Saudi riyals in Q417.

“The reason for such exceptional numbers apart from better prices is that the company underwent shutdown and enhancement project for some of its product lines in 4Q17,” the report said.

According to data from Eikon, two analysts have a 'strong buy' rating on the stock while three analysts have a 'buy' rating, five analysts have a ‘hold’ rating and one analyst has a ‘sell’ rating.

The company’s stock price has added close to 18 percent so far this year, and was last down 0.39 percent by 14:38 GST on Monday.

APPC

Advanced Petrochemical Company (APPC) posted a third quarter (Q3) 2018 net profit after zakat and tax of 202.2 million Saudi riyals, compared to 208.4 million Saudi riyals a year ago.

Ubhar Capital estimates the company to post earnings growth of over 100 percent “because of increase in Polypropylene prices and increase in share in profit on investment.”

According to data from Eikon, one analyst has a 'strong buy' rating on the stock while five analysts have a 'buy' rating, and three analysts have a ‘hold’ rating.

The company’s stock price has added close to 14 percent so far this year, and was last up 1.52 percent by 14:38 GST on Monday.

Industries Qatar

Industries Qatar posted a third quarter (Q3) 2018 net profit after zakat and tax of 1.32 billion Qatari riyals ($362.6 million) compared to 747.8 million riyals a year ago.

Ubhar Capital estimates the company to grow its earnings in Q4 2018 by 35 percent, to 1.29 billion Qatari riyal, compared to 0.96 billion Qatari riyals in Q4 2017.

“Industries Qatar has remained the best performing stock within the petrochemical sector of GCC. The company not only enjoyed higher product prices but also the overall rally in Qatar market also aided in the price appreciation,” the report said.

According to data from Eikon, one analyst has a 'buy' rating on the stock while six analysts have a 'hold' rating, and one analyst has a ‘sell’ rating.

The company’s stock price has added close to 42 percent so far this year, and was last down 0.72 percent by 14:38 GST on Monday.

Sipchem and Sahara

Saudi International Petrochemical Company (Sipchem) and Sahara Petrochemical Company announced to the exchange recently that they entered into a legally binding agreement to implement a “business merger of equals”.

Sipchem will make an offer to all Sahara shareholders to acquire all their shares in Sahara, in exchange for the issue of new shares in Sipchem.

Once the transaction is completed, Sahara’s shares will be delisted from the exchange and the company will become a wholly owned subsidiary of Sipchem.

“A combined Sipchem-Sahara entity will move up the league table in the GCC petrochemical sector. Simple summation of net income would result in a fifth largest petrochemical company within the GCC,” Ubhar Capital said in the report.

Sipchem has posted a third quarter (Q3) 2018 net profit after zakat and tax of 180.3 million Saudi riyals, compared to 121.6 million Saudi riyals a year ago.

According to data from Eikon, three analysts has a 'buy' rating on the stock, three analysts have a 'hold' rating, and one analyst has a ‘sell’ rating.

The company’s stock price has added close to 18 percent so far this year, and was last down 0.29 percent by 15:15 GST on Monday.

Sahara has posted a third quarter (Q3) 2018 net profit after zakat and tax of 168.5 million Saudi riyals, compared to 165.1 million Saudi riyals a year ago.

According to data from Eikon, one analyst has a 'buy' rating on the stock and two analysts have a 'hold' rating.

The company’s stock price has been mostly flat in 2018, and was last down 0.97 percent by 15:15 GST on Monday.

(Reporting by Gerard Aoun; Editing by Shane McGinley)

(Gerard.aoun@refinitiv.com)

Our Standards: The Thomson Reuters Trust Principles

Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.

© ZAWYA 2018


More From Equities