NCB Capital, Saudi Arabia’s largest investment bank, has added analysis of SABIC to its award-winning equity research coverage. It has initiated coverage recently with an “overweight” rating and a price target of SR130.8 pershare.
SABIC is a leading global petrochemical player, with a broad product range, integrated production flow and low cost feedstock advantage. A strong presence in emerging markets and a generally robust pricing environment support the upside potential for the stock.
NCB Capital’s analysis includes the following highlights:
A diversified product portfolio:
NCB Capital believes SABIC has one of the region’s most diversified and strongest product ranges including petrochemicals, fertilizers and metals. Moreover, with its integrated production flow, feedstock cost advantage and wide production base, SABIC is able to post globally leading margins. NCB Capital forecasts SABIC’s overall gross margins at 33.7% in 2011E versus 25% for global peers.
Promising economic indicators strengthen outlook:
Despite the fragility of the global economic recovery, petrochemical demand is growing at a steady pace, led by emerging markets, especially China. With its wide product portfolio and strong presence across geographies, SABIC remains a key beneficiary of this growth. Approximately 50% of SABIC’s sales is to emerging markets with 30-40% to China alone.
Expanding production base:
In 2010, SABIC started operations at Yansab (KSA), Sharq’s 3rd expansion project (KSA) and its petrochemical complex in Tianjin (China) through a JV with Sinopec. These complexes added 8.5mn mtpa to SABIC's existing base of 61mn mtpa of petrochemical products. The timing of these projects seems ideal as petrochemical demand started picking up during 2010. Commencement of the Saudi Kayan complex in 2011 will add performance chemicals to SABIC's product mix. NCB Capital expect SABIC's total petrochemical capacity to increase to 77mn mtpa by 2014E.
Good investment opportunity at current levels:
NCB Capital initiated coverage on SABIC with an Overweight rating and a price target of SR130.8/share. SABIC’s strong margin outlook and expanding production base should lead to net income growing 34% in 2011E to SR28.6bn. The stock trades on 2011E P/E and EV/EBITDA multiples of 11.2x and 6.8x, respectively.
NCB Capital was voted best research house in three categories in Euromoney’s annual Middle East research survey for 2010. The bank achieved a total of 10 ranked positions in the 2010 survey, the third highest amongst all research firms in the region. On the basis of top ranked positions, the firm achieved the second highest total in the region.
NCB Capital was awarded:
- Best Research House in the Cement Sector
- Best Research House in the Consumer Goods/Retail Sector
- Best Research House in the Food and Agriculture Sector
Additionally, it was ranked second in Oil and Natural Gas, Economics, and Credit. It also won third place in Strategy and fourth in General Industries.
The bank provides analysis on the agriculture and food, cement, construction, industrials, petrochemical, consumer goods/retail and utilities sectors; the only domestically-owned investment bank to offer such a range.