SABIC reported a weak set of Q3 22 results, with a net income declining by 67.1% yoy (-76.8% qoq) to SAR1.8bn. This is significantly lower than the SNB Capital and consensus estimates of SAR4.7bn and SAR5.2bn, respectively. This is the weakest earnings since Q3 20. In-line with other Saudi petrochemicals companies results in Q3 22, we believe the variance is due to higher-than-expected feedstock prices, logistics, and/or inventory loss. Adjusting for the SAR0.51bn impairment provision Q3 22, net income would be SAR2.35bn.
Revenues stood at SAR46.9bn, up 7.3% yoy (-16.3% qoq) and was in-line with our estimates. The qoq decline was due to lower prices (-15%) and a slight decline in volumes (-1%). Petrochemicals segment revenues were SAR39.1bn, down 15% qoq, but were higher than our estimates of SAR37.03bn. Average prices declined by 18% qoq while volumes grew 3% qoq. Agri-nutrients revenues stood at SAR4.26bn, down 25% qoq, and was lower than our estimates of SAR4.67bn. The decline was driven by lower volumes (-17% qoq) and prices (-8% qoq). Hadeed sales declined 13% qoq to SAR3.55bn vs our estimates of SAR3.99bn due to a decline in prices (-9% qoq) and volumes (-4% qoq).
Gross profit came in at SAR9.84bn, down 19.9% yoy (-40.6% qoq) and lower than our estimates of SAR11.32bn. Gross margin was 21.0%, (the lowest level since Q2 20) and was lower than 28.1% in Q3 21 and Q2 22 and our estimates of 24.8%. We believe the decline in margins is due to higher than expected feedstock prices, logistics and/or inventory losses.
Opex increased to SAR6.56bn, higher than our estimates of SAR5.53bn. Opex/sales stood at 14.0%, higher than 10.5% in Q3 21 and our estimates of 12.1%. EBITDA was SAR6.78bn, down 39.0% yoy (-49.0% qoq). As of Q3 22, SABIC realized a cumulative synergy of SAR3.64bn) since Aramco deal.
SABIC expects margins to remain under pressure in Q4 22. It was also highlighted that capex will be 20% less than planned due to the current global conditions which requires cost controls and strong balance sheet.
In Q3 22, HDPE prices declined 5.0% yoy (-14.6% qoq) to US$1,032, MEG prices decreased 23.0% yoy (-17.2% qoq) to US$530. PP-propane spread decreased 43.7% yoy (+1.6% qoq) to US$301.
Based on our latest update, we are Neutral on SABIC with a PT of SAR117.6. We await the full financials to update our PT. We believe the global economic slowdown and its impact on product prices is a key risk in the coming period. The stock is trading at 2023f P/E of 12.8x vs its peer group average of 14.6x.