Sabic third-quarter profit down again but seen poised for recovery

Saudi Basic Industries Corp said that higher Zakat provision and an impairment of 366m riyals gainst its Arabian Industrial Fibers Company (Ibn Rushd) subsidiary contributed to a lower income.

Above, the Saudi Basic Industries Corp headquarters. Sabic is 70 per cent owned by the Saudi government. Faisal Al Nasser / Reuters

Saudi Basic Industries Corp, the world’s fourth-largest petrochemicals company, said third-quarter profit fell by nearly 7 per cent because of weaker markets for its products and rising costs.

The company said net income was 5.2 billion Saudi riyals (Dh5.1bn) for the three months to the end of last month, compared with 5.6bn riyals a year earlier. Third-quarter sales were down by nearly 11 per cent to 33bn riyals. It is the ninth quarter in a row that profit has declined, as its oil-price-linked products have been hit by weaker end markets and lower oil prices.

Sabic, which is 70 per cent owned by the Saudi government, said a higher Zakat (religious tax) provision and an impairment charge against its Arabian Industrial Fibers Company (Ibn Rushd) subsidiary of 366 million riyals also cut into income.

Yousef Al Benyan, Sabic’s chief executive, said he expected next year also to be tough but stable while the company continues to cut costs and look for growth opportunities.

“We predict that 2017 is going to be a quite challenging year for us,” Mr Al Benyan said at a press conference in Riyadh after the results on Wednesday. “We need to focus internally on how we can improve our efficiency.”

Profit has been falling but Sabic’s shares have been among the best performers on the Tadawul so far this year, rising by 7.6 per cent against an index fall of 21 per cent. Its shares closed 2 per cent higher at 84 riyals on Wednesday in Riyadh.

“At first glance, the numbers look quite good, with a gross margin of 32.9 per cent, the highest since 2011,” said Aditya Pugalia, an analyst at Emirates NBD in Dubai, adding that the company’s cost control and restructuring efforts have helped even as it has had to deal with the government cutting subsidies on utilities this year.

Key markets are still pressured – especially China – with weaker economic growth, reflected in an average decline of 11 per cent in prices for Sabic’s products, which range from plastics to fertilisers to metals.

“We need to focus internally on how we can improve our efficiency,” said Mr Al Benyan, who said earlier this month that Sabic will combine its polymers and chemicals divisions and bring its wholly owned subsidiary, Saudi Iron & Steel Company (Hadeed), together with other metals business to rationalise and cut costs.

While earnings are still under pressure, Mr Pugalia said there are signs that Sabic is poised for turnaround, “especially if Opec does go ahead and clinches a deal [limiting crude output at its November 30th meeting] and oil finds a price floor around US$50-55 a barrel, then it should be quite positive heading into 2017 in terms of the commodities cycle.”

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