Hard landing in Q4

SABIC reported results significantly below the market expectations attributing it to the lower product price environment. Net profit declined by 10% y-o-y and 36% q-o-q in Q4. In full year 2011, the company reported a solid 36% y-o-y net profit growth on the back robust performance in Q2 and Q3 2011. Further, SABIC’s CEO indicated that petrochemical demand and prices are likely to pick-up only by the end of 2012. Considering the weak Q4 results and ongoing global macro-economic concerns, we might lower our earnings estimates for the next 2-3 quarters post release of the detailed financial results.. For the moment, we remain Overweight on the stock with a target price of SAR122.3.

Valuation and Conclusion: We believe that the ongoing European debt crisis and slowing down of industrial activities globally have resulted in the q-o-q decline in product prices in Q4. We are cautious about the outlook for the petrochemical sector in the short term, which may lead to revise our forecasts for SABIC post the release of the detailed Q4 results. For the moment, we remain Overweight on the stock with a target price of SAR122.3.


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