SABIC Q2 results are a ‘favourable sign’ - HSBC

21 July 2009 16:15  [Source: ICIS news]

TORONTO (ICIS news)--SABIC’s second-quarter results are a sign that the company is overcoming the low point in its recent earnings, despite a 76% profit decline from the 2008 second quarter, HSBC said on Tuesday.

“These results show a marked improvement on a sequential basis, and, in our view, should be perceived favourably as a sign of bouncing up from the trough levels of Q4 2008/Q1 2009”, the London-based international bank said in a research note.

SABIC reported second-quarter net profit down 76% year on year to Saudi riyals (SR) 1.8bn ($480m, €337.7m), but on a sequential basis the profit compared with a first-quarter loss of SR974m.

According to HSBC’s analysis, the Saudi Arabia-based international petrochemicals major had seen sales volumes for the first half of 2009 up 2%, which, in the current recessionary environment, pointed to gains in market share.

While the company’s results disclosure was limited, the year-on-year decline could be due to continued weakness at SABIC Innovative Plastics, coupled with weak methanol and urea prices in the second quarter, the bank said.

Going forward, HSBC expected methanol and urea prices to recover through the course of the second half of 2009 – in line with the current higher crude oil price environment –  a development that “should bode well for second-half 2009 results”, it said.

HSBC also said it believed that SABIC’s decision not to distribute a dividend for the first half of the year was a prudent move in light of continued economic uncertainty.

“[This] should not be viewed as a sign of earnings weakness in future quarters,” the bank said.

The bank rates SABIC’s shares “overweight”, with a target price of SR95. The shares were priced at SR66.50 on Tuesday.

 ($1 = SR3.75/€1 = SR5.33)

For more on SABIC visit ICIS company intelligence
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By: Stefan Baumgarten
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