Sabic offers great value to investors, says HSBC

Saudi Basic Industries Corp offers attractive valuations to investors despite reporting its first annual profit decline in two years, HSBC has said.

“Particularly after yesterday’s stock price correction, we believe that Sabic is extremely attractively valued,” said Hassan Ahmed, managing director of global chemicals research at HSBC, in a note on Sunday.

Saudi Basic Industries Corp, also known as Sabic, is the biggest company in the Gulf by market value. On Saturday, the chemical-maker said third-quarter net income fell 2.2 percent to $1.92 billion. It did not give a reason for the decline.

Sabic is able to sell petrochemicals cheaper than many global competitors because of its access to discounted feedstock gas from Saudi Aramco, the world’s largest state-run oil company.

“Even if we were to assume a long term crude oil price of $60 per barrel, this would imply $800 per tonne as the cost of ethylene production for marginal producers even in a trough,” said Ahmed, who has an “overweight” rating on the stock.

“Sabic’s cost of ethylene production is around $250 per tonne, so even in a trough scenario we would see Sabic generate very healthy profitability within its core olefins and polyolefins product chain.”

Sabic, which is 70 percent owned by the Saudi government, fell 10 percent in Riyadh yesterday to 95 riyals today. The shares lost 43 percent this year.

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