SABIC reported a better-than-expected set of Q2 22 results, with a net income increasing by 3.8% yoy (+22.5% qoq) to SAR7.93bn. This is significantly higher than the SNB Capital and consensus estimates of SAR6.10bn and SAR6.25bn respectively. We believe, the growth in earnings and variance was due 1) higher than expected revenues 2) higher gross profits despite higher feedstock costs 3) higher share of profits from JV’s and associates. This was partially offset by higher-than-expected selling and distribution expenses. Adjusting for non-recurring items, Q2 22 net income would be SAR7.57bn.
Revenues stood at SAR56.0bn, up 32.0% yoy (+6.3%qoq), highest on record. This is higher than our estimates of SAR53.2bn. The qoq growth was driven by both higher selling prices (up 3% qoq) and volumes (up 3% qoq). Petrochemicals segment revenue stood at SAR46.2bn, up 4% qoq vs our estimates of SAR45.1bn. The average sales prices were up 4% qoq while volumes remained flat qoq. Agri-nutrients revenues increased to SAR5.69bn, up 41% qoq, and is significantly higher than our estimates of SAR4.20bn. The growth was driven by higher volumes (up 39% qoq), while prices increased modestly (up 1% qoq). Hadeed sales declined 6% qoq to SAR4.08bn, but is higher than our estimates of SAR3.87bn. Volumes decreased by 14% qoq, partially offset by 6% qoq increase in prices.
Gross profit came in at SAR16.6bn, up 21.3% yoy (+12.7% qoq), higher than our estimates of SAR14.0bn. Gross margin was 29.6, lower than 32.2% in Q2 21 but higher than 27.9% in Q1 22 and our estimates of 26.3%
Operating expenses increased to SAR6.76bn much higher than our estimates of SAR5.15bn and SAR5.38bn in Q1 22. Opex-to-sales stood at 12.1%, higher than 10.2% in Q1 22 and our estimates of 9.7%. We believe, the higher opex is due to the increase in selling & distribution expenses due to rise in freight costs. EBITDA stood at SAR13.3bn, down 3.0% yoy (+4.0% qoq). SABIC has realized a cumulative synergy of US$727mn (SAR2.73bn) upto Q2 22 since the Saudi Aramco deal.
In Q2 22, HDPE prices increased 11.2% yoy (+0.5% qoq) to US$1,220, MEG prices decreased 3.9% yoy (-9.9% qoq) to US$621. PP-propane spread decreased 57.3% yoy (-33.4% qoq) to US$276.
Based on our June 22 update, we are Neutral on SABIC with a PT of SAR117.6. We believe, SABIC’s near-term outlook is positive, supported by its global growth strategy and ESG projects along with Saudi Aramco cost synergies. However, a slowdown in demand and persistently high industry-wide feedstock costs are key risks. SABIC is trading at 2022E PE of 14.0x vs its peer group average of 17.1x.