Saudi Basic Industries Corporation (SABIC) - Result Update - June 2009 (PDF)

In 2008, Saudi Basic Industries Corporation (SABIC) achieved a growth of 20.8% in sales revenue while the profitability of the Company has declined by 18.5% to SR22.0bn. The Company’s profitability was severely dented during 4Q2008, because of economic slowdown and financial crisis. Consequently, the sector has experienced a massive fall in the prices of petrochemical products and lower demand. The major reason for lower prices during 4Q2008 was the fall in average crude oil prices in 4Q2008. Moreover, crude oil prices during 1Q2009 remained under pressure and led us to revise down our average crude oil price range from our initial forecast of US$75-US$80 per barrel to US$60-US$65 per barrel. In the wake of massive fall in demand of petrochemical products, we have revised down the Company’s capacity utilization in the range of 70%-75%, during 2009. However, the expected economic and financial recovery in late 2010 will lead the Company to improve its capacity utilization in the range of 85%-90%, during 2011-12. SABIC is still committed to make expansions in its existing capacities. Based on the given plans, the Company’s expansion projects are expected to make addition of 14.2mn tons to reach 69.7mn tons (petrochemical, fertilizer and metal) in 2012.

Our consolidated value for the stock worked out to be SR75.6, which offers a potential upside of 11.5% to the market price of SR67.8 as on 22nd June 2009. We, therefore, maintain our ‘BUY’ recommendation for the stock.