Page 8 - DMEA Week 18 2020

DMEA COMMENTARY DMEA
SABIC sinks deep into the red
The Saudi petrochemicals giant was facing headwinds even before the COVID-19 pandemic took hold
SAUDI ARABIA
WHAT:
Saudi petrochemicals giant SABIC has posted its second quarterly loss in a row.
WHY:
Even before COVID-19, the petrochemicals market was bearish as a result of sluggish economic growth and excess supply.
WHAT NEXT:
The pandemic will put further pressure on SABIC in the second quarter. Saudi Aramco’s $69bn purchase of a majority stake in the company
is set to proceed as planned.
EMBATTLED Saudi petrochemicals giant SABIC has posted another quarterly loss, amid weak demand and prices, warning that harder times are yet to come. To cope, it has suspended all capital expenditure besides spending on late- stage projects and necessary operations.
SABIC, due to be taken over by Saudi oil giant Saudi oil giant Saudi Aramco, booked a net loss of SAR950mn ($253mn) in the three months ending March 31, compared with a fourth-quar- ter loss of SAR790mn. In contrast, it achieved a net profit of SAR3.41bn in the first quarter of 2019.
SABIC’s revenues were down 18% year on year and 6% quarter on quarter, at $8.22bn.
Even before the coronavirus (COVID-19) pandemic took hold, SABIC, one of the world’s biggest petrochemicals producers, was strug- gling. Increased production in China and the US has created a supply glut in the global pet- rochemicals market, while a slowdown in eco- nomic growth has weakened demand, causing prices to fall. The loss SABIC incurred in the fourth quarter was its first in a decade.
“We have a ‘Sell’ rating on SABIC as we believe global chemicals will be in a trough market for the coming two years; however, we acknowledge that the stock has already seen a
sizeable correction and valuation is now starting to make more sense,” Yousef Husseini, an analyst at Egypt-based EFG Hermes, says in a research note.
Looking forward, SABIC CEO Yousef al-Ben- yan warned that the COVID-19 pandemic, weaker energy prices and a bearish economic outlook would put further pressure on its reve- nue stream. These factors will be reflected “more significantly” in the company’s second-quarter results and could continue to affect its business until the end of the year. He noted that prices for some of SABIC’s products had fallen by as much as 25%.
“This, along with an oversupply in our key products, will put further pressure on product prices and margins,” he said.
Capex cuts
In response to the collapse in global demand, SABIC has cut its capex this year by more than 20% by putting some non-priority projects on hold. However, it will continue spending on some projects in the US, China and India which it sees as critical for its growth.
“SABIC is committed to capital discipline and maintaining a strong balance sheet and has sus- pended all capex, except for non-discretionary
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w w w . N E W S B A S E . c o m Week 18 07•May•2020