SABIC misses Q4 profit estimates, says Riyad Cap

Saudi Basic Industries Corp's (SABIC) fourth-quarter 2018 earnings of SAR 3.2 billion, was weaker that Riyad Capital and consensus estimates' of SAR 5.2 billion, the brokerage said in an earnings review on Wednesday.

However, full-year earnings came in at SAR 22 billion, an increase of 17 percent year-on-year, thanks to higher average selling prices and sales volumes, but a strategic restructuring initiative lowered profits by SAR 1.1 billion, it added.

The petchem major's listed subsidiaries (Kayan and Yansab) posted Q4 earnings well below market expectations, except Safco, which posted profits in line with street estimates.

SABIC’s revenues came in at SAR 40.1 billion for the fourth quarter, in line with the brokerage's forecast of SAR 40.4 billion. Gross profit fell to SAR 12.2 billion, while operating profit settled at SAR 6.5 billion. 

Last year witnessed two successful acquisitions for SABIC, a 25 percent stake in Clariant and Saudi Methanol Company (Al-Razi). It also witnessed the signing of a non-binding MoU to sell its Agri-nutrient investments to Safco. The MoU stipulates that Safco will offer cash, stock, or both to acquire the investments.

"We believe the purchase will most likely be stock based as this will give SABIC the opportunity to become a majority shareholder and allow Safco to take advantage of its high P/E, not to mention the tax savings from a stock swap.

“We expect the company to maintain its pace of growth going forward along with increased R&D expenditure," the report added.

Riyad Capital recommended a "neutral" rating on the stock, setting the target price at SAR 124.