Riyadh - Mubasher: Itqan Capital has initiated its coverage for the Saudi Basic Industries Corporation (SABIC) with an "Underweight" recommendation and set the target price (TP) of the stock at SAR 77.4 per share.

The 52-week TP represents a downside potential of 13.1%, according to a report on Tuesday.

Even though SABIC enjoys a strong financial position in terms of assets and cash liquidity, the research note expects SABIC’s profitability to continue falling in the medium term, given the low demand and prices and the coronavirus (COVID-19) outbreak. This would last until signs of an economic recovery start to appear.   

SABIC’s ambitious investment strategy and its stake in Clariant AG were identified by Itqan as the key growth catalysts for the coming period. However, key risk factors are the negative impact of the COVID-19 pandemic and the US-China trade war.

Moreover, Itqan predicted Saudi Arabia’s oil or non-oil gross domestic product (GDP) to fall in 2020.

“Not only is the pandemic's duration uncertain, but the economic recovery also will not be fast. It will need time until the people's state of anxiety begins to fade, and the emergence of indicators that are confirming the positive transformation, such as the success of the economic openness after the shutdown months,” the report said.

This is testified by SABIC’s announcement to distribute the ten-year lowest dividends of SAR 4.5 million for the first half (H1) of 2020, capturing ample supply and a negative demand outlook.

In the first quarter (Q1) of 2020, SABIC turned to a loss of SAR 950 million, against a profit of SAR 3.41 billion in the same quarter a year earlier.