An improvement in demand for petrochemicals and enhanced operational performance will be the key drivers for the sector growth in 2014, said a report.

“However, year to date volatility in global demand and ongoing efficiency concerns remain. This has led to the reduction of our YoY earnings growth by 250bps to 18.5 per cent YoY in 2014 to reach SR40.6 billion, commented Iyad Ghulam, Equity Research Analyst at NCB Capital.

“The global economy was volatile during the first quarter of 2014 due mainly to weak US data and the tensions in Ukraine. The US retail sales declined 0.6 per cent month-on-month in January while jobs data came in weaker than expected.

The poor data for the start of the year was mainly attributed to the colder than expected winter.

“Subsequently, the data-points have indicated a pick-up in activity supporting our positive view on a recovery in the global economy. On the other hand, continuing tensions in Ukraine pose another threat to the petrochemical sector specifically and could negatively impact the global economy if the situation escalates,” he stated.

NCB Capital remains overweight on Sabic, SIIG, Tansee, Yansab and Advanced, and Neutral on Safco, Kayan, Sipchem, Sahara and Petrochem.

“Our top pick is Tasnee,” remarked Iyad Ghulam. “Strong earnings outlook for 2014 driven by higher margins for TiO2 and petrochemicals segments, new start-ups and an attractive valuation, are the main reasons behind our preference for the stock,” he added.

NCB Capital remains Overweight on Tasnee with a PT of SR37.8. Strong earnings outlook off the back of the anticipated improvement in the titanium business, better efficiency in the petrochemicals business and contribution from the new projects in 2014 are the key drivers for the stock in the short term.

NCB Capital remains overweight on Sabic with a revised PT of SR133.7. Sabic is well placed to benefit from improving demand conditions due to its sustained focus on expansion, diversified product mix and wide geographical presence, it stated.

A strong balance sheet raises the possibility of increasing dividends and/or acquisition in the near to medium term, the NCB Capital report added.-TradeArabia News Service