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|28 April, 2019

Saudi's SABIC reports drop in first quarter earnings

SABIC expects its 2019 performance to be in-line with the global petrochemical industry trends

A man walks past the headquarters of Saudi Basic Industries Corp in Riyadh. Image used for illustrative purpose.

A man walks past the headquarters of Saudi Basic Industries Corp in Riyadh. Image used for illustrative purpose.

REUTERS/FAISAL NASSER

Saudi Basic Industries Corporation (SABIC) reported a drop in first quarter (Q1) earnings for 2019.

SABIC, the world's fourth-biggest petrochemicals company, said in its earnings release that its “performance in 2019 is expected to be in-line with the global petrochemical industry trends,” noting that “the global economic growth is expected to moderate, from a revised 3.0 percent in 2018 to about 2.9 percent in 2019, according to the World Bank.”

The company’s Q1 2019 net profit after zakat and tax dropped to 3.41 billion Saudi riyals ($910.64 million), compared to 5.51 billion riyals in Q1 2018, a 38.11 percent year-on-year drop. This was 1 percent higher than EFG Hermes’ estimate.

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Yousef Husseini, head of the chemicals equity research team at EFG Hermes, told Zawya by email that the company's earnings witnessed a "modest recovery (quarter-on-quarter) sequentially as expected".

According to SABIC’s earnings release report, the company’s net income increased by 5 percent quarter-on-quarter, while EBITDA (earnings before interest, tax, depreciation and amortization) amounted to 10.15 billion riyals, a 2 percent decrease quarter-on-quarter and a 28 percent decrease year-on-year, although this was 13 percent higher than EFG Hermes’ estimate.

“EBITDA was ahead of our expectations on a combination of higher-than-expected revenues (+5 percent) and higher than expected margins (EBITDA margin of 27.2 percent in Q1 2019 vs 25.9 percent in 4Q18, while EFG’s estimate was at 25.3 percent),” Husseini added.

The company’s revenue stood at 37.37 billion riyals in Q1 2019, compared to 41.86 billion riyals in Q1 2018, a 10.73 percent decrease.

“Looking ahead, we expect some improvement in 2Q19 as prices start to find more momentum on higher oil prices and a pick-up in demand but we still expect it will be a relatively challenging quarter ahead as petchem and fertiliser prices have only seen modest improvements,” Husseini said.

SABIC’s shares edged 0.32 percent higher on Sunday to 123.8 riyals by 12:54 GST and have gained 6.54 percent so far this year.

“We maintain our Neutral rating on SABIC as we believe valuation is full at current levels but continue to think the stock is a strong beneficiary of MSCI/FTSE flows in the coming period,” Husseini said.

(Reporting by Gerard Aoun; Editing by Michael Fahy)

(gerard.aoun@refinitiv.com)

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© ZAWYA 2019

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