Saudi SABIC reports a net profit but falls short of estimates

SABIC Reports Q3 2024 Net Profit Amid Challenges in Petrochemical Market

On November 4, 2024, Saudi Basic Industries Corp (SABIC), one of the world’s largest petrochemical companies, announced a significant turnaround in its financial performance for the third quarter of 2024. The company reported a net profit of 1 billion riyals (approximately $266.7 million), marking a notable recovery from a substantial net loss of SAR 2.88 billion recorded in the same quarter of the previous year.

Financial Performance Overview

Despite this positive shift, SABIC’s net profit fell short of analysts’ expectations, which had estimated a profit of SAR 1.6 billion. This miss highlights ongoing challenges in the petrochemical sector, primarily driven by fluctuating market conditions. The reported profit also represented a 54% decline compared to the previous quarter, influenced by several factors including:

• Gross Profit Decline: SABIC’s gross profit decreased by 3%, amounting to SAR 194 million. This decline was attributed to lower selling prices for its products and rising feedstock costs, which have put pressure on margins.
• Revenue Growth: In contrast, the company’s revenue increased by 2.5% year-on-year, reaching SAR 36.88 billion. This growth was mainly driven by higher sales volumes, although it was partially offset by a slight decline in average selling prices. The ability to boost sales volume indicates some resilience in demand, even amid challenging market conditions.

Capital Expenditure Plans

Looking ahead, SABIC has projected its capital expenditures (CAPEX) for 2024 to be between $3.3 billion and $3.9 billion. This investment is expected to support the company’s growth initiatives and enhance its production capabilities, positioning SABIC for future opportunities in the petrochemical sector.

Market Analysis and Insights

Anoop Fernandes, a senior analyst at Bahrain-based SICO, provided insight into SABIC’s financial results, noting that there were no significant surprises in the numbers reported for the quarter. He highlighted SABIC’s competitive position in the market, stating, “It’s a cost-competitive company compared with its global peers, so it was able to maintain profits.” However, Fernandes pointed out that the main issue facing the company is weak demand for petrochemicals, particularly in China and globally, which has led to destocking and no clear signs of recovery in this demand phase.

Additionally, he mentioned that non-recurring items, specifically losses associated with the fair value assessment from the Alba stake sale transaction, contributed to the company’s earnings missing consensus forecasts. This emphasizes the impact of one-off financial events on the overall performance metrics.

Overall, while SABIC’s return to profitability in Q3 2024 is a positive development, the company continues to navigate a complex landscape marked by volatile pricing and shifting demand dynamics in the petrochemical sector. The outlook remains cautiously optimistic, with significant capital investments planned to bolster its operations and potentially capture future growth opportunities. As SABIC moves forward, it will need to address the ongoing challenges of market demand and pricing pressures to maintain its competitive edge.