Weak prices, delays to weigh on petrochem profits in 2015: NCB Capital

The total profit of Saudi Arabia’s top petrochemicals companies is expected to drop 18.2 percent to SAR 27.4 billion year-on-year because of weak prices, shutdowns and delays, says NCB Capital in a report on the sector’s second quarter performance.

Meanwhile, the sector has gained 18 percent this year, outperforming the kingdom’s Tadawul All Share Index by nine percent on higher prices, fair valuation and opening of the market to international investors, the report said.  

“We believe the stocks are trading at fair valuation, in-line with global peers and reflecting the improvement in oil prices,” NCBC added.

Accordingly, NCBC remains “overweight” on top picks such as Saudi International Petrochemical Company (Sipchem) and the National Petrochemical Company (Petrochem), which are expected to report a YoY growth this year, driven by operational efficiency and volume growth despite the decline in oil prices.

NCBC upgraded Saudi Industrial Investment Group (SIIG) to “overweight” on attractive valuation, which is at a 23.5 percent discount to the sector and on expected improvement in the performance of petrochemicals.

Petrochem earnings are expected to gain 11.9 percent, while Sipchem profit is estimated to grow 20 percent. Sipchem completed its phase III expansion, which may contribute SAR 142 million to 2015 net income.

It also downgraded to “neutral” National Industrialization Company (Tasnee) on delays of the new facilities and the negative outlook for titanium dioxide.

Sahara Petrochemical Co. was downgraded to on losses incurred in its newly started projects; while Saudi Kayan was downgraded to “underweight” on weak margins and ongoing operational problems.