PHOTO
Shares in Saudi International Petrochemical Company (Sipchem) rose on Wednesday, after the company reported its earnings results for the full year 2018, despite a drop in fourth quarter (Q4) 2018 earnings.
The company announced a net profit after zakat and tax of 583 million Saudi riyals ($155.4 million) for 2018, compared to 437.4 million Saudi riyals for 2017, translating into a 33.3 percent increase.
Sipchem’s Q4 2018 net profit amounted to 40 million Saudi riyals, compared to 164.4 million Saudi riyals for Q4 2017, translating into a 75.7 percent drop.
Yousef Husseini, head of the chemicals team of analysts at EFG Hermes, told Zawya by email that Sipchem’s results “are quite weak”. He attributed this mainly to “a major shutdown (two months) at the methanol plant to complete the energy efficiency program and for turnaround maintenance, which weighed heavily on the numbers”.
The company's methanol plant was shut down on the September 16, and operations resumed on November 24.
Husseini added that lower product prices also dragged the numbers lower, but said that the impact from pricing “was likely minimal compared to the shutdown.”
“We wouldn’t read into the numbers too much since the shutdown is one-off in nature,” Husseini said.
Sipchem's sales amounted to 5.04 billion Saudi riyals in 2018, compared to 4.46 billion Saudi riyals in 2017, rising 13 percent year-on-year.
Husseini added that he expects some recovery in Q1 2019 earnings. “With that said, we are buyers of Sipchem as we think the company’s recent expansion at the methanol unit is not fully priced in and should help in partially mitigating the impact of lower prices.”
“But we acknowledge that regional methanol prices would have to rise back closer to USD350/t (from USD290/t today) for the company to deliver on our expectations, so there are certainly downside risks associated" with the company's performance, Husseini said.
The company’s stock price rose 1.6 percent on Wednesday, pushing Saudi Arabia’s stock market index to close 0.2 percent higher. Since the start of 2019, Sipchem’s shares have dropped 4.51 percent.
According to data from Eikon, four analysts have a ‘buy’ rating on the Sipchem stock, two analysts have a ‘hold’ rating and one analyst has rated the stock as ‘sell’.
Nitin Garg, a senior analyst at Bahrain-based SICO, told Zawya by email that the weak earnings were expected due to the shutdown.
“The stock performance in 2019 will be driven by news flow surrounding (the) Sipchem-Sahara merger,” Garg added.
Sipchem and Sahara Petrochemical Company announced in December 2018 that they had entered into a legally binding agreement to implement a proposed business merger of equals. (Read more here).
Elsewhere in the region, Dubai’s index rose 0.31 percent on Wednesday, Abu Dhabi’s index finished flat, Kuwait’s premier market index dropped 0.65 percent, Qatar’s index fell 1.18 percent while Bahrain’s index retreated 1.11 percent and Oman’s index edged 0.24 percent lower.
(Reporting by Gerard Aoun; Editing by Michael Fahy)
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 2019
