x Abu Dhabi, UAE Thursday 20 July 2017

Sipchem gears for growth after long wait

What's up It took a big hit in profitability last year, but pre-recession investments are paying off for Saudi International Petrochemical Company.

DUBAI // It took a big hit in profitability last year, but pre-recession investments are paying off for Saudi International Petrochemical Company (Sipchem). Sipchem has waited three years for its 4 billion riyal acetyl products complex to be built in Jubail, Saudi Arabia. But now the job is complete, and this new production facility is expected to be a catalyst for growth, says Global Investment House, the largest investment bank in Kuwait, which yesterday put a "buy" recommendation on the stock.

Global has raised its "fair value" estimate for the company to 29.5 riyals per share, more than 23 per cent above yesterday's stock close of 22.7 riyals on the Saudi bourse. "Sipchem's future growth is mainly associated with the newly built acetyl complex," Global said in an advisory note to investors on Wednesday. The complex's production structure, Global said, would allow Sipchem to further strengthen economies of scale and improve its overall capacity utilisation, while reducing its dependence on methanol sales, which face tough regulatory issues in western markets.

"This will translate into an improvement in the company's future profitability margins during 2010-2013," Global said. The complex will also allow Sipchem's overall production to rise at a compound annual rate of 31.9 per cent for the next four years, reaching 2 million tonnes in 2013. The company's profit fell 73.8 per cent last year, mainly because of a steep drop in the average price of petrochemical products as the global economy slipped into recession. Sales fell 51.4 per cent to 830 million riyals.

This year, however, Sipchem could see its fortunes rebound. Global expects revenue almost to double. Sipchem's profitability and gross margins could both show "remarkable recovery" this year, the investment bank added. It forecasts after-tax profit for Sipchem this year of 390.7m riyals, a 177.4 per cent improvement from last year. Sipchem makes methanol from natural gas and benefits from Riyadh's generous gas subsidies. It will now be able to convert part of its methanol output into acetyl products, for which more robust demand is expected.

skhan@thenational.ae tcarlisle@thenational.ae