NCB Cap ‘overweight’ on Sipchem despite weak Q3

Saudi International Petrochemical Co.’s (Sipchem) third quarter net losses of SAR 59 million missed the SAR 22 million estimate set by NCB Capital and the consensus estimate of SAR 31 million, the firm said in an earning review.

The brokerage said that weak operating rates and gross margin led to the deviation in earnings. Gross margin stood at 12.4 percent in Q3-2016, lower than its estimate of 18.7 percent and the rate of 25.9 percent in Q3-2015.

Revenues stood at SAR 680 million, (18.1 percent lower than estimate) and gross profit came in at SAR 84 million, in Q3-16, “significantly below our estimates. This is the lowest gross profit since Q3-09,” the brokerage added.

In Q3-16, Sipchem conducted an 11-day shutdown at its IGC unit, with an estimated financial impact of SAR 17 million. “We believe this shutdown impacted the operations at the downstream acetic acid and EA units. Moreover, the company mentioned that methanol sales were deferred to Q4-16 which further impacted sales,” NCB Capital said.

However, the brokerage remained “Overweight” on Sipchem with a price target of SAR 16 per share. “Despite the weak Q3-16 results, expected improvement in operating rates and efficiency following shutdown, positive methanol outlook are the stocks' key positives.”

Sipchem swung to a net loss of SAR 59 million, compared to a net profit of SAR 71.6 million in Q3 2015, dragged down by higher general and administrative expenses, financing charges as well as zakat provision. The company also saw lower sales and lower selling prices for all of its products.