HSBC recommends SABIC, says Q1 results were strong

22 April 2009 15:53  [Source: ICIS news]

Sabic Headquarters (Source: Sabic)TORONTO (ICIS news)--Saudi Basic Industries Co (SABIC) first-quarter recurring results were much stronger than the net loss of Saudi Riyals (SR) 974m ($260m) the petrochemicals major reported, HSBC said in a research note on Wednesday, and went on to recommend the stock as “buying opportunity”.

SABIC’s first-quarter loss, its first in seven years, compares with a SR6.92bn net profit it reported in the 2008 first quarter.

The company, in its disclosure, cited a SR1.18bn asset impairment charge associated with its acquisition of GE Plastics. Excluding the charge, there would have been a net profit of SR207m for the period.

However, according to an analysis by London-based international bank HSBC, SABIC’s first quarter likely included additional restructuring charges of some SR1.5bn-2.0bn.

“Throughout the course of 2008 fourth quarter and the 2009 first quarter, SABIC announced a series of restructurings – plant shutdowns and staff terminations – and we believe the SR207m net income number still includes these charges,” the bank said in its analysis.

SABIC’s plant shutdowns were primarily in Europe – the UK and Spain; the company has also terminated 1,600 jobs.

In addition, SABIC likely made some inventory write-downs in the first quarter, the analysts said,

“We estimate these restructuring charges as being around SR1.5bn-2.0bn, making the recurring number SR1.7bn-2.2bn – well north of our pre-results SR1.1bn estimate,” they said.

“Owing to the ‘noise’ in the quarter, we think that there is a fair bit of confusion in the market and believe this represents a great buying opportunity in the name,” it added.

HSBC rates SABIC’s shares “overweight” with a target prices of SR90.

($1 = SR3.75)

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By: Stefan Baumgarten
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