The cumulative net income of Saudi Arabia's petrochemical sector is estimated to reach 10 billion riyals ($2.67 billion) in 2023, dropping 67% year-on-year (YoY), Aljazira Capital said in a new report.

However, the profit is expected to rise by 130% to SAR 23 billion in 2024 as economic recovery in the sector sets in.

The combined revenue of petrochemical companies under the brokerage’s coverage is set to decline 23.7% in 2023 to SAR 194.2 billion due to lower product prices, but increase by 11.3% in 2024.

The Saudi-listed companies under coverage are Saudi Basic Industries Corporation (SABIC), Sahara International Petrochemical Company (Sipchem), Advanced Petrochemical Company, Saudi Kayan Petrochemical Company, Alujain Corporation, SABIC Agri-Nutrients, anbu National Petrochemical Company (Yansab) and National Industrialization Company (Tasnee).

The sector’s gross profit margin is likely to contract to 16.6% in 2023 from 22.5% in the previous year, impacted by lower product spreads despite a correction in feedstock cost, the brokerage added.

However, gross profit margins are slated to expand to 21.5% in 2024.

Meanwhile, the average dividend yield for the sector is expected to hit 4.6% in 2024 compared to 3.9% in 2023, as profitability and free cash flows improve.

"Investors can look at companies such as Sipchem (5.5%), Yansab (4.5%), SABIC (4.4%) and SABIC AN (3.7%) to pay attractive dividends in 2024," the report said.

(Editing by Brinda Darasha; brinda.darasha@lseg.com)