3 main elements for stock picking in the petrochemical sector

The head of stock research at Al Ahly Capital, Iyad Ghulam, said that the petrochemical sector is “sensitive,” because it is greatly and rapidly affected by economic cycles, and during the past two or three years it has witnessed record price rises and falls that have not occurred in many years.

Iyad Ghulam added, in an interview with Al-Arabiya, today, Wednesday, that the link is great between the petrochemical sector and the global economy, and as usual, the growth of the sector must be commensurate with the growth of the global economy, which is currently going through difficult challenges with increasing expectations of entering a period of economic recession, and increasing rates of Inflation is global and therefore central banks resort to raising interest rates and tightening their monetary policy to reduce inflation rates and thus raise deflation expectations.

He explained that expectations regarding new factories in China producing products produced by Saudi petrochemical companies are putting pressure on demand and pricing, and thus the sector’s profitability expectations are poor next year.

The head of equity research at Al-Ahly Financial said that Al-Ahly’s financial outlook is very positive in the medium and long term for the Saudi petrochemical sector, and its share prices are currently attractive, but the coming period will be difficult, and the selection of preferred shares in the sector is according to certain factors that help it reduce the negative impact.

Iyad Ghulam added that NCB Capital identified 3 main elements for preferring stocks in the Saudi petrochemical sector, which are the diversity of the product mix, and that these products are not affected by the reduction in production capacity and benefit from places where demand is high or prices are high, and the second element is that they have a good mix of values ​​represented by stability. The price of “ethane”, which helps it achieve good profit margins, and the third element is the strength of the financial position and the low debt ratio in light of the presence of high interest rates ranging from 6 to 7%, which exhausts companies that have high debts, in addition to the company’s ability to maintain Good cash dividends.

The head of stock research at Al-Ahly Capital said that Al-Ahly Capital raised its recommendation for the “SABIC” share to increase the relative weight, due to the presence of a diversified product mix, and the cost of feedstock tends to be stable, and it is conducting a process to reduce costs in cooperation with “Aramco”, which will reduce it by about 5 billion riyals. During the coming years, in addition to the strength of the financial position of “SABIC”, given that despite the challenges it raised its dividends this year, which indicates the strength of its financial position.

Iyad Ghulam added that the shares of SABIC Agro-Nutrients Company are also among the favorites, given the expectations of a significant rise in urea prices, as well as the “Sipchem” share, which has a different mix of products that helps it maintain good levels of profitability.