Al Rajhi Capital cuts Saudi SABIC’s target price on difficult outlook
Riyadh-based brokerage Al Rajhi Capital has cut Saudi Basic Industries Corporation’s (SABIC) target price to SAR 107 ($28.53) per share from SAR 135 earlier due to expected margin pressure and challenging market dynamics.
The petrochemicals giant said its Q2 2022 net profit rose 4% to SAR7.93 billion but it warned that margins are expected to be under pressure in the second half of the year.
Al Rajhi Capital said the results were largely in line with their estimates. It has a Neutral rating on the stock.
The Agri-Nutrients segment was the best performing segment, with 14% q-o-q growth in EBITDA, followed by Hadeed, offsetting weak Petrochemicals and Specialties segment performance.
"SABIC earlier indicated that there were in-transit Urea shipments at the end March, which we think could have been recognized in Q2, leading to a 39% q-o-q rise in Agri-Nutrients sales volume, and thereby helping the company to post record earnings since Q3 2011," the brokerage said.
Going forward, SABIC indicated a cautious outlook for H2 2022, primarily due to fears of slowing down the global economy amid the lockdown in China and persistent supply chain issues. Average polymer prices are currently declining, primarily due to likely lower demand and increased supply. On the other hand, feedstock prices, despite the recent decline, are still at relatively high levels, indicating weak product spreads and thereby earnings in the near term.
"Nonetheless, the company’s ability to control costs, coupled with the anticipated synergies through the Aramco deal, are likely to offset these impacts to some extent."
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