Dubai - Arabstoday
As the Middle East\'s largest listed company, Saudi Basic Industries Corp (Sabic) has much to celebrate in 2011. Analysts expect the Saudi petrochemical giant to experience record sales and profitability over the next two years, as petrochemical prices return to pre-crisis levels and more output capacity is added. Unlike many other leading Gulf companies, Sabbic has no reason to go to the markets in 2011, as the company has made clear every time speculation has raised its head. One thing is for sure, 70 per cent owned by the Saudi government the petrochemical giant is hardly short of cash. Not that Sabic is happy to rest on its laurels this year. As the company\'s chief executive officer and vice chairman, Mohammad Al Mady, pointed out on the sidelines of an event in Beirut recently, Sabic is \"always watching\" for the right kind of acquisitions. Article continues below Indeed, 2011 has already seen the company — the world\'s largest chemicals producer by market value — announce a major project in Tianjin with China\'s state-owned oil giant Sinopec. Sabic told Reuters in May that the project would have an annual capacity of 260,000 tonnes of polycarbonate and require total investment of more than $1 billion (Dh3.67 billion), as part of its existing 50/50 venture with Sinopec in Tianjin. Polycarbonate is a essential plastic used to produce a variety of consumer products and industrial components including automotive parts and compact discs, and China will continue to be a key market for Sabic, Al Mady said, pointing out that petrochemical demand should grow by an annual 20 per cent for the next 10 years in the world\'s second largest economy. Performance In 2011, the company is stronger than ever. Sabic managed to deliver its best quarter in terms of performance in the first quarter of 2011, with net income reaching 7.69 billion Saudi riyals (Dh7.5 billion) 41 per cent higher than the same period in 2010. Samer Dawiche, an analyst at GulfMena Investments in Dubai, points out that this growth is likely to continue. \"2011 should be Sabic\'s best year,\" he told Gulf News. \"Analyst consensus reflect that full year earnings estimated at 27 billion riyals versus 21 billion riyals in 2010.\" According to GulfMena estimates, the second quarter should witness the same results for Sabic, with oil prices hovering around the $100, the petrochemical cycle still at its peak and volume additions throughout the year from Yansab, Sharq and Tianjin and the start of the commercial production of Kayan to help profitability. \"The ownership structure of Sabic is ideal for the region. Government are backing such companies and giving them access to cheap feedstock and subsidies,\" Dawiche said. \"But most importantly, the government is sharing the profits of the petrochemical industry with the public through listing a company like Sabic.\" Indeed, Sabic\'s ownership structure is the subject of much speculation on GCC markets, especially in terms of whether the company will make more shares available in the coming years to finance projects or acquisitions. Dawiche is one analyst who was not surprised by the company quashing speculation at the end of last month that it would go to the market with an Islamic bond or sukuk in 2011. \"The news indicates Sabic\'s strong fundamental position and its ability to fund all its obligations internally. The cash ratio (1.14x), quick ratio (1.8x) and current ratio (2.64x) are all at healthy levels,\" he said. But despite the enviable status of the company in 2011, not everyone is in agreement about the attractiveness of Sabic to investors. In its most recent report on the company, Credit Suisse reviewed its model, downgrading Sabic to neutral and reducing its target price from 120 riyals to 116 riyals. \"Sabic has ramped up its capacity significantly, with stated plans to increase capacity by more than 4.4 million tonnes annually during 2011 and 2012, predominantly at Saudi Kayan,\" the firm estimates. Saudi Kayan consists of 16 plants, but two are expected to be delayed until 2012, presenting a potential issue for the firm. \"We expect Saudi Kayan to be operational over 2011-12, and any delays could pose a further downside risk. Our crude price assumption is $90 (for WTI) and materially higher crude prices would suggest an upside EPS risk.\" The drop in Saudi Arabian shares to a three-month low, led by banks and petrochemical companies, at the end of June after the IMF cut its US growth forecast for 2011, caused some analysts to speculate that petrochemical companies such as Sabic could suffer from a decrease in demand from the US. Turki Fadaak, an analyst with Al Bilad Investment Company in Riyadh, told Reuters: \"Investors are concerned that demand for petrochemicals will drop after the IMF cut its projection for US growth.\" Saudi Arabia\'s petrochemical exports in April made up 31 per cent of the kingdom\'s overall non-oil exports valued at 12.3 billion riyals, according to data published on the Department of Statistics and Information\'s website, so some felt that the fears were well founded. But others, like Darwiche, are not convinced. \"Sabic\'s main market is Asia, China and India. And the demand from there is available. We will see a negative effect if the IMF revises growth for China and India,\" he said. Publicity As has been seen, Sabic\'s intentions in China have been generating a good deal of publicity. In May, the company said it was strengthening its presence in the region by investing in two technology and innovation centres in China and India, both expected to be operational by 2013. The China centre, in Shanghai, would have 550 staff and would also serve as the headquarters for Sabic\'s Greater China operations, the company said. Alongside its Tianjin project, the company is poised for even more growth in the east — even if demand in the west begins to taper off.