HSBC has revised downwards the Middle Eastern petrochemical sector’s earnings and share target prices as the industry grapples with lower products and oil price assumptions.
The bank reduced its 2016-2018 oil price estimates to $45/b in 2016 and $75 in the long run, thus cutting earnings estimates by 5-10 percent on average, noting that the sector was trading at price to book ratio of 1.02x, which is lower than during the financial crisis of 2008-2009 despite the stronger fundamentals.
HSBC upgraded to “buy” National Petrochemical Co (Petrochem) and sees “clear value” in preferred stocks of Saudi Basic Industries Corp. (SABIC), Yanbu National Petrochemical Co. (Yansab), and Advanced Petrochemical Co.
“We upgrade Petrochem to buy from hold as we believe that the recent sell-off is unjustified given ethylene, the company’s main product, continues to enjoy high margins,” the bank’s analysts said in a research note. “Our preferred stocks are companies with strong balance sheets, strong cash flow yields, and high dividend payouts, trading at big discounts to invested capital and replacement cost.”
The Saudi petrochemical sector declined 43 percent, tracking oil which has dropped 48 percent.
“Investors remain concerned about the impact that volatile oil prices and slower Chinese demand will have on chemical demand and sector earnings,” HSBC said.
China is one of the world’s largest importers of petrochemical and oil products, and one of the Middle East’s biggest trading partners.
Write to Abeer Allam at abeer.allam@argaam.com
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HSBC: Stocks to Buy |
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Advanced |
Target price SAR 42, implying upside of 23% |
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Tasnee (National Industrialization Co) |
TP SAR 13 from SAR 14 |
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Petrochem |
TP SAR 18 from SAR 17 |
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Petro Rabigh |
TP SAR 13 from SAR 15 |
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SIIG |
TP SAR 19 from SAR 20 |
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Sipchem |
TP SAR 18 from SAR 22 |
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Yansab |
TP SAR 40 from SAR 45 |
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Egypt’s Sidi Kerir |
TP EGP 16 from EGP 17 |
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Stocks to Hold |
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Chemanol |
TP SAR 5.75 from 7.5 |
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Sahara |
TP SAR 9 from SAR 11.5 |
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Saudi Kayan |
TP SAR 5.25 from SAR7.5 |
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Industries Qatar (IQ) |
TP QAR 104 from SAR 140 |
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Turkey’s PetKim Petrokimya Holding |
TP TRY 5 from TRY 3.5 |
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South Africa’s Sasol |
ZAR 420 from ZAR 450 |
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