Sabic reports 47% jump in third-quarter profit on higher sales volumes

Increase in amount of products sold is a testament to the company's 'strong marketing capabilities', EFG analyst says

Saudi Basic Industries Corporation (Sabic) reported a 47 per cent rise in its third-quarter net profit on the back of higher sales volume and production. Faisal Al Nasser / Reuters
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Saudi Basic Industries Corporation (Sabic), the Middle East's biggest petrochemicals firm, reported a 47 per cent rise in third-quarter net profit on the back of higher production and sales volumes and a reversal in impairments.

Net profit for the three months ending September 30 jumped to 1.09 billion riyals ($291 million), the company said in a statement to the Tadawul stock exchange, where its shares trade. Revenue, however, dropped 11 per cent to 29.3bn riyals.

“The third quarter of 2020 benefitted from an improvement in economic activity and an increase in oil price, which translated in higher product prices,” Yousef Abdullah Al-Benyan, vice chairman and chief executive of Sabic, said. “Our business and operational performance demonstrated their resilience once again, reflected in higher sales volumes in the third quarter of 2020. This resulted in improved margins.”

A gain of about 690 million riyals through a reversal of impairments, which is mainly related to its investment in Swiss chemicals giant Clariant, also boosted earnings, the company said. The quarterly profit came after three straight quarters of losses amid volatile market conditions and in the wake of the Covid-19 pandemic.

“Overall, a decent set of numbers that were generally better than expected,” EFG Hermes said in a note on Sunday. “The strength in volumes (8 per cent year-on-year) is particularly encouraging and speaks to Sabic’s strong marketing capabilities. We were especially impressed that the company was able to deliver stable volumes year-on-year through nine months of 2020 (1 per cent), despite its chemicals business (MEG, methanol and MTBE in particular), likely seeing close to double-digit declines in demand year-on-year through nine months of 2020.”

During the nine-month period, the company posted a loss of 2.18bn riyals, compared to a profit of 6.09bn riyals during the same period last year mainly due “to the lower average selling prices in addition to the recognition of impairment provisions in certain capital and financial assets, net of 1.55bn riyals”.

Though Sabic expects a recovery in the global economy next year and economic activity in the third quarter was higher than the second quarter, "supply still exceeds demand for our key products", placing pressure on product pricing and margins for the foreseeable future, it said.
Saudi Aramco, the world's largest oil-exporting company, completed the acquisition of a 70 per cent stake in Sabic in June for $69.1bn.

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