NCB Capital downgrades Sipchem to “Neutral”, revises target price

NCB Capital downgraded its recommendation of Sahara International Petrochemical Company (Sipchem) from “Overweight” to “Neutral” and revised the target price to SAR 19.30 per share.

The brokerage firm attributed the downgrade to the trade war between China and USA, as well as concerned over the global economy.

“The outlook of the petrochemicals sector has shifted during the past four quarters from positive with high margins to negative with multi-year low prices,” it said in a research note.

“The US-China trade war, weakness in the auto industry and excess capacity are putting pressure on petrochemical products demand and prices. The recovery of the petrochemicals sector relies heavily on a positive outcome of the trade war,” NCB further noted.

NCB Capital also expects Sipchem’s net income to grow 32.6 percent year-on-year (yoy) to SAR1.05 billion in 2020, driven by full year consolidation of Sahara post-merger, and cost efficiency along with higher operating rates after shutdowns.

“In 2019, Sipchem had several long shutdowns at the butanediol, acetic acid, VAM and carbon monoxide facilities,” NCB Capital said.

On the positive side, Sipchem is expected to benefit from cost synergies following the merger and improved operational efficiency along with an attractive dividend yield of 5.5 percent.  

“This will enable the company to meet the needs of a wider range of clients across the globe and reducing the volatility of its earnings,” it added.