Petrochemicals Monthly - Feb 2016

Transcription

1 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Saudi Arabia 4 February 2016 January 18, 2010 Monthly update In our monthly note, we update price movements of major petrochemical products, manufacturing activity in key demand markets, recent announcements and valuations of Saudi petrochemical companies and their global peers. Price movement of key petrochemical products Products 1-Month Y-o-Y Ethylene -7.3% +12.2% HDPE +1.4% -7.8% LDPE +3.3% -6.4% Propylene -12.1% -34.9% Polypropylene 0% -14.2% Methanol +2.0% -12.3% Benzene -7.0% -22.6% Ammonia -8.3% -45.0% Urea -12.5% -44.0% YTD Performance (Rebased to 100) SABIC Sipchem SAFCO NIC Yansab APC TASI, Al Rajhi Capital Research Department ARC Research Team Tel , devassyp@alrajhi-capital.com Petrochemicals Monthly - Feb 2016 Global growth slows, product prices weak Benchmark crude prices continued their downward movement in January (Brent: -7.1%, WTI: -9.2%) as lifting of sanctions against Iran is expected to add to the oil glut in the market. However, oil prices bounced back sharply in the last week of January after Russia said that it was open to talks with the OPEC for coordinated production cuts to balance the supply-demand mismatch. The weakness in crude prices and the soft demand scenario negatively impacted petrochemical product prices, which continued to head southward in line with the global oil prices. The IMF lowered its global economic growth forecast for the year, indicating the sluggish demand expectation. The Saudi Petrochemical index declined sharply by ~12% led by Petro Rabigh (-21.1%), NIC (-19.5%) m-om, supported by Sipchem (-18.5%), SAFCO (-15.7%), and SABIC (-8%). Meanwhile, the TASI also declined significantly by 13% m-o-m. Crude prices drop: Brent crude prices continued to move downward (~7.1% m- o-m; WTI: ~9.2%) on the back of rising supply, sluggish economic growth and a mild winter. The IMF recently lowered its global economic growth forecast, which suggested that oil demand would remain soft. The fall in the US oil rig count (to 498 as of January 29 vs. 516 at the beginning of 2016; source: Baker Hughes) has been unable to prevent the slide. Crude oil inventories in the United States went up by 7.79mn barrels in the week ended January 29, which was much higher than the market expectations of a 4.76mn increase. The OPEC crude production dipped marginally by 0.21mbpd in December to average 32.18mbpd (source: OPEC), which was well above its self-set limit of 31.5mbpd. Manufacturing still in contraction zone: The US January PMI stood at 48.2, a slight uptick of 0.2 percentage points over December 2015 (48). The strong dollar, along with the collapse in oil prices, has forced manufacturers to cut back heavily on capital expenditures. The Caixin PMI for China was marginally ahead at 48.4 for January (48.2 in December, 2015) but remained in the contraction zone. The manufacturing PMI in the Eurozone declined to 52.3 (53.2 in December 2015) during January due to slowing new orders and output growth. However, the accelerated increase in employment and high backlogs of work suggest that the expansion would be sustained in the coming months. The manufacturing PMI in India rose to 51.1 in January of 2016 (49.1 in December 2015) on the back of production and new orders recovering from December s flood-related contractions. Product prices muted: Ethylene (-7.3%), Propylene (-12.1%), Toluene (-11.3%), were biggest losers over the month. Ammonia (-8.3%m-o-m),Urea (-12.5%), MTBE (-2.3%), Polystyrene (-1.9%), EDC (-4.2%), and VCM (-4.1%) were down as well. Only Methanol (+2.0%), along with HDPE (+1.4%) and LDPE (+3.3%) witnessed an uptick. Saudi Petrochemical Index declines: The sharp fall in crude prices as well as weak Q earnings resulted in the Saudi Petrochemical Index declining sharply by ~12% led by Petro Rabigh (-21.1%), NIC -19.5% m-o-m, Sipchem (- 18.5%), and SAFCO (-15.7%). SABIC (-8%) and Yansab (-5.1%) remained a drag. Meanwhile, the TASI also dipped by 13% m-o-m in January. Please see penultimate page for additional important disclosures. Al Rajhi Capital (Al Rajhi) is a foreign broker-dealer unregistered in the USA. Al Rajhi research is prepared by research analysts who are not registered in the USA. Al Rajhi research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities, an SEC registered and FINRA-member broker-dealer.

2 Key news & announcements Sipchem to complete purchase of Ikarus stakes in affiliates by Q1 2016: Saudi International Petrochemical Co. (Sipchem) is planning to complete the purchase of the stake (11%) owned by Kuwait s Ikarus Petroleum Industries Co. in two of the petrochemical producer s affiliates - International Vinyl Acetate Co. and International Acetyl Co. by Q (Source: Argaam) Global petchem demand may grow at 6.5% by 2020: Global demand for petrochemical products is expected to reach US$890 billion by 2020, increasing at an annual compound growth rate of 6.5% between 2015 and Methanol is projected to be the fastest growing segment from 2014 to (Source: Argaam) Russia, OPEC may discuss cutting oil output: Russia is considering talking to members of the OPEC about reducing production to rein in falling oil prices, the chief of pipeline company Transneft said on Wednesday in a statement carried by a Russian news agency. The CEO, attending a meeting of oil executives and government officials in Moscow on Tuesday, said the meeting concluded that a discussion with the OPEC was required to stabilize oil prices. (Source: Argaam) Saudi Aramco buys US$1 billion oil products from South Korea s S-Oil: South Korea-based S-Oil Corp said on Wednesday that it would sell oil products worth 1.34 trillion Korean won (US$1.12 billion) to Saudi Aramco s trading arm. Under the deal, S-Oil would deliver 12 million-24 million barrels of low-sulphur diesel and 12 million-20 million barrels of light naphtha to Saudi Aramco Products Trading Co. (Source: Argaam) Saudi Kayan: Plant maintenance to begin March 1, 2016: Saudi Kayan has outlined plans for a maintenance shutdown, which was postponed last year to The company plans to take the ethylene oxide and ethylene glycol units offline for 48 days beginning March 1, It will also perform maintenance at the polycarbonate, ethoxylates, and amines plants for 53 days each, starting March 1. Saudi Kayan estimates the impact of the shutdown to be SAR96mn, based on the current petrochemical prices, which will be reflected in the company s Q1 and Q2 of the current financial year. (Source: Argaam) Saudi Sadara set to start up butyl glycol plant in H2: Saudi Arabia s Sadara Chemical Co. (Sadara) is on schedule to start up the new butyl glycol (BG) plant in the second half of 2016, according to ICIS. The Jubail-based plant will have a combined BG and butyl di-glycol (BdG) capacity of,000 tons per year. The US$20 billion Sadara is 65% -owned by Saudi Arabian Oil Co. and 35%-owned by US-based Dow Chemical. (Source: Argaam) Saudi Arabia wants to cooperate to support oil prices: Saudi Arabia wants to cooperate with other oil producers to help stabilize crude prices, the Saudi-owned Al- Arabiya TV announced, citing an unnamed Saudi source. The Kingdom was not the source of the output reduction proposal that Russia was studying, the source added. On Thursday, Russia said that the OPEC had proposed production cuts of up to five percent in an effort to reduce oversupply in the market. (Source: Argaam) SABIC: Restructuring plan will not include layoffs: Saudi Basic Industries Corp. (SABIC) will not cut jobs as part of a recently announced restructuring plan, Prince Saud bin Abdullah, board chairman, told CNBC Arabia. Speaking on the sidelines of the World Economic Forum in Davos, the chairman said the firm s new strategy would include spending cuts and other measures to boost efficiency. (Source: Argaam) Saudi Aramco chairman: IPO could be open to international markets: An IPO of Saudi Aramco, the world s biggest oil company, could be on the local or international markets but would not include Saudi energy reserves, the company s chairman told Saudiowned al-arabiya television. (Source: Argaam) Disclosures Please refer to the important disclosures at the back of this report. 2

3 Kuwait to buy 25% stake in South Korea-Saudi venture: Kuwait s Petrochemicals Industries Co (PIC) has agreed to buy a 25% equity stake in a venture owned by South Korea s SK Gas Co Ltd and Saudi Advanced Petrochemical Co. PIC, a subsidiary of state oil giant Kuwait Petroleum Corp, will invest in SK Advanced, which is building a,000 tons-per year PDH project in South Korea. (Source: Argaam) Yansab plans 10% cash dividend for H2-2015: Yansab s board of directors recommended the distribution of SAR1 per share of dividend for the second half of 2015, amounting to a total payout of SAR562.5mn. Shareholders of record on the general meeting date will be entitled to receive the dividend. This takes the total dividend for 2015 to SAR2 per share. (Source: Argaam) SABIC lowers MEG Asian CP for February by US$20 to US$710/ton: SABIC has nominated a low price for its February Asian Contract Price for MEG to US$710 per ton, a m-o-m reduction of US$20. MEG spot market price declined to US$580 per ton last week. (Source: Argaam) LLDPE demand growth rate likely to average 3.5% through 2020: Growth for global demand of LLDPE is expected to reach 3.5% through 2020 on the back of demand from the packaging industry. China is projected to continue to be the world s largest producer of LLDPE in 2019, but would remain a net importer of the product. Gulf producers market share was about 17%, or 5.9mn metric tons, of the total global LLDPE production of 34.4mn tons last year. China s output of 7.2mn tons represented 21% of the global market share. (Source: Argaam) Kayan cuts financial impact estimates to 1% after clarification from Saudi Aramco: Saudi Kayan Petrochemical Co. cut the expected financial impact due to energy price hikes to 1% from 8.5% announced earlier after Saudi Aramco said that it would maintain the prices of some feedstock contracts until Kayan clarified that it was granted a grace period of seven years and three months for some feedstock, namely ethane, butane and methane, which were being supplied from Accordingly, new feedstock prices will be gradually applied by the second quarter of Related impact will be announced beforehand, Kayan added. (Source: Argaam) Tasnee s manufacturing investments hit SAR5bn: Tasnee s investments into its manufacturing segment have reached SAR5bn, accounting for 10-15% of the company s total revenue, the company CEO told CNBC Arabia. (Source: Argaam) SABIC s polyacetal plant will start production in 2017: SABIC 50,000 ton-per-year polyacetal plant is set to start production in early 2017, according to a senior manager of the company s polyacetal business. SABIC sees 5% rise in costs after subsidy cuts: SABIC expects a 5% increase in annual production costs, due to energy price hikes, the company said in a statement to the Saudi bourse. (Source: Argaam) Saudi Aramco starts 17-day maintenance at Riyadh refinery: Saudi Aramco started a 17-day scheduled maintenance at a benzene unit at its Riyadh refinery to improve efficiency and production capacity, and to increase the octane rating. The maintenance, which will be completed on February 4, will not affect production of petroleum products or its ongoing supply to the market, the state-owned company said. (Source: Argaam) SABIC cuts January urea price to SAR 874/ton: SABIC has slashed local urea prices to SAR874 per ton for January, marking a month-on-month cut of SAR75 per ton. The company has kept the price of January DAP unchanged at SAR2,130 per ton for the 27th consecutive month. (Source: Argaam) Methanex cuts methanol prices to Asia by US$30/ton for Jan: Methanex Corp., the world s largest producer and supplier of methanol, has cut its Asian contract price by $30 to $275 per ton for January, as compared to the previous month. The company slashed Disclosures Please refer to the important disclosures at the back of this report. 3

4 the price of its contracts in the North American market by US$50 to US$299/ton. (Source: Argaam) Advanced to maintain annual dividend of SAR 3/share: Advanced Petrochemical Co. (APC) will maintain its annual dividend payout of SAR 3 per share, the company s CEO told CNBC Arabia TV. (Source: Argaam) SAFCO: High feedstock, energy prices would increase production costs by 8%: SAFCO has said that its production costs are expected to rise by 8% due to upward revision in feedstock and electricity pricing. The financial impact will be reflected from Q results. (Source: Argaam) Yansab expects 6.5% rise in production costs after energy price hikes: Yansab expects a 6.5% increase in production costs following the Kingdom s decision to raise energy and electricity tariffs. The financial impact is expected to begin in the first quarter of (Source: Argaam) Petro Rabigh expects SAR300mn financial impact due to energy price hikes: Petro Rabigh expects an annual financial impact of around SAR300mn from the revision in energy prices. (Source: Argaam) Saudi Aramco to prioritize some projects, keeps focus on costs: Saudi Aramco will keep its focus on cost controls in the short-term, with some projects delayed at the expense of high-priority initiatives. The focus on costs comes as Saudi Arabia has been tightening its budget to cope with an expected lengthy period of low oil prices and its 2016 plans, including spending cuts, and reforming energy and utility subsidies. (Source: Argaam) Summary of Q Results Figure 1 Quarterly results of listed Saudi petrochemical companies Companies (SAR mn) Revenues Net Income Q Q Q % change y-o-y Q Q Q % change y-o-y Advanced Petrochemicals Co % % Alujain Corp % % Methanol Chemicals Co % (18) (43) (60) NM Nama Chemicals Co % (46) (24) (25) NM National Industrialization Co 3,676 3,614 3, % 161 (296) (690) NM National Petrochemical Co 2,230 1,912 1, % % Rabigh Refining & Petrochemicals Co 11,146 6,675 2, % (198) (460) (1,009) NM Sahara Petrochemical Co % (48) NM Saudi Arabian Fertilizer Co 1, % % Saudi Basic Industries Corp 43,435 37,352 34, % 4,356 5,604 3, % Saudi Industrial Investment Group 2,230 1,912 1, % % Saudi International Petrochemical Co % % Saudi Kayan Petrochemical Co 2,526 2,195 1, % 12 (14) (624) NM Yanbu National Petrochemicals Co 2,290 1, 1, % % 71,821 58,989 50, % 6,422 6,635 1, % Source: Company data, Al Rajhi Capital Disclosures Please refer to the important disclosures at the back of this report. 4

5 Saudi Petrochemical Index vs. Major Indices Figure 2 Saudi Petrochemical Index vs. TASI and Industry Indices (Petrochemical Index -12% and TASI -13% m-o-m) Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Saudi Petrochemical Index S&P500 Chemical Index MSCI World Chemical Index TASI Note: Rebased to 100 on January 1, 2013 Crude, Gas and Naphtha Spot Prices Figure 3 European Brent Crude (-7.1% m-o-m) US$/barrel Figure 4 WTI Crude (-9.2% m-o-m) US$/barrel Figure 5 Natural gas (Henry Hub) (-2.6% m-o-m) US$/mmbtu 10 Figure 6 Naphtha (-15.3% m-o-m) Disclosures Please refer to the important disclosures at the back of this report. 5

6 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Manufacturing activity and economic growth trend in key markets Figure 7 United States Manufacturing PMI (48.2 vs. 48.0) Figure 8 Euro zone Manufacturing PMI (52.3 vs 53.2) Source: US ISM Source: Markit Figure 9 China Manufacturing PMI (48.4 vs 48.2) Figure 10 India Manufacturing PMI (51.1 vs 49.1) Source: Caixin-Markit Source: Nikkei-Markit Figure 11 Real GDP growth trend % growth Q Q Q Q Q Q1 2016E Q2 2016E Q3 2016E Q4 2016E Q1 2017E US Euro Area China India Disclosures Please refer to the important disclosures at the back of this report. 6

7 Petrochemical product price trends Basic Olefins & Polyolefins Figure 12 Ethylene (-7.3% m-o-m) Figure 13 Polyethylene (HDPE: +1.4%, LDPE: +3.3% m-o-m) HDPE LDPE Figure 14 Propylene (-12.1% m-o-m) Figure 15 Polypropylene (0% m-o-m) Methanol & MTBE Figure 16 Methanol (+2% m-o-m) Figure 17 Methyl Tertiary Butyl Ether (MTBE) (-2.3% m-o-m) 1 1 Disclosures Please refer to the important disclosures at the back of this report. 7

8 Figure 18 Benzene (-7.0% m-o-m) 1 1 Benzene & its derivatives Figure 19 Toluene (-11.3% m-o-m) 1 1 Figure 20 Styrene (-5.1% m-o-m) Figure 21 Polystyrene (-1.9% m-o-m) Other key petrochemical products Figure 22 Mono-ethylene glycol (-1.7% m-o-m) Figure 23 Ethylene di-chloride (-4.2% m-o-m) Disclosures Please refer to the important disclosures at the back of this report. 8

9 Figure 24 Vinyl chloride monomer (-4.1% m-o-m) Figure 25 Polyvinyl chloride (+1.4% m-o-m) 1 Figure 26 Purified terephthalic acid (-5.2% m-o-m) 1 Figure 27 Caustic soda (-1.7% m-o-m) Ammonia & Fertilizers Figure 28 Ammonia (-8.3% m-o-m) 700 Figure 29 Urea (-12.5% m-o-m) Disclosures Please refer to the important disclosures at the back of this report. 9

10 Metals Figure 30 Gold (+5.4% m-o-m) US$/oz Figure 31 Aluminum (-6.1% m-o-m) Figure 32 Price movement of key petrochemicals, fertilizers and metals Products Recent Price % Change 1-Month QTD YTD 1-Year European Brent (US$/bbl) 33.2 (7.1) (7.1) (7.1) (29.1) WTI (US$/bbl) 33.6 (9.2) (9.2) (9.2) (24.5) Natural Gas (US$/mmbtu) 2.3 (2.6) (2.6) (2.6) (21.8) Naphtha () (15.3) (15.3) (15.3) (20.4) Key petrochemicals () Ethylene 825 (7.3) (7.3) (7.3) 12.2 HDPE (7.8) LDPE (6.4) Propylene 535 (12.1) (12.1) (12.1) (34.9) Polypropylene (14.2) Methanol (12.3) MTBE 516 (2.0) (2.0) (2.0) (8.6) Benzene 530 (7.0) (7.0) (7.0) (22.6) Toluene 550 (11.3) (11.3) (11.3) (12.7) Styrene 830 (5.1) (5.1) (5.1) (1.8) Polystyrene 1045 (1.9) (1.9) (1.9) (6.3) Other petrochemicals () Mono-ethylene glycol 711 (1.8) (1.8) (1.8) (23.3) Ethylene di-chloride 230 (4.2) (4.2) (4.2) (23.3) Vinyl chloride monomer 590 (4.1) (4.1) (4.1) (18.1) Polyvinyl chloride (10.4) Purified terephthalic acid 550 (5.2) (5.2) (5.2) (9.1) Caustic soda 530 (1.7) (1.7) (1.7) (6.0) Fertilizers () Ammonia 275 (8.3) (8.3) (8.3) (32.9) Urea 210 (12.5) (12.5) (12.5) (44.0) Metals Gold (US$/oz) (10.8) Aluminum () 1583 (6.1) (6.1) (6.1) (21.6), Al Rajhi Capital Disclosures Please refer to the important disclosures at the back of this report. 10

11 Figure 33 Performance of Saudi petrochemical companies vs. global peers Company Currency Last Price % Change 52-Week Dividend 1 Month QTD YTD 1 Year High Low LTM Yield Saudi Arabia SABIC SAR (9.9) (12.5) 3.2 (35.2) % SAFCO SAR (12.9) (15.4) (9.6) (23.6) % Sipchem SAR (15.1) (33.9) (19.4) (50.3) % NIC SAR 8.54 (18.5) (28.6) (44.9) (62.4) % Yansab SAR (5.4) (16.1) 0.6 (38.1) % APC SAR (1.2) (17.4) 19.3 (10.6) % SPC SAR 8.20 (21.4) (16.4) (17.9) (53.5) % Saudi Kayan SAR 5.00 (22.9) (20.0) (21.5) (50.3) NA NM PetroRabigh SAR 9.69 (17.7) (17.2) (3.9) (50.0) % SIIG SAR (14.9) (27.2) (19.7) (51.8) % Chemanol SAR 5.39 (20.6) (28.9) (21.4) (47.8) NA NM Nama SAR 5.55 (20.9) (21.2) (20.4) (51.1) NA NM Alujain SAR (16.4) (18.9) 5.5 (35.0) NA NM National Petrochemical SAR (11.6) (20.3) (9.1) (43.3) NA NM Middle East & Africa (ex-saudi Arabia) Industries Qatar QAR (5.5) (7.6) (17.1) (26.7) % Mesaieed Petrochem QAR (11.4) (10.2) (24.2) (33.2) % Sidi Kerir EGP (8.3) 2.3 (3.8) (26.3) % Al Qurain KWd (11.8) (8.3) (8.3) (25.9) % Sasol ZAr 41,.00 (3.0) (5.6) 0.3 (28.5) 49, ,.0 1, % Europe BASF EUR (12.6) (9.6) 5.8 (5.3) % Solvay EUR (25.1) (15.0) (4.0) (9.9) % Lanxess EUR (13.0) (14.8) 18.7 (3.1) % Arkema EUR (15.2) (2.7) % Yara NOK (12.9) (9.6) % Akzo Nobel EUR (5.8) (7.6) % Clariant CHF (11.4) (8.9) % North America Eastman USD (8.0) (11.4) (3.4) (10.3) % Dow USD (6.4) (14.5) (2.4) (15.5) % Westlake USD (16.2) (19.5) (9.2) (42.6) % Celanese Corp USD (8.5) (15.2) 2.5 (1.3) % Methanex USD (24.1) (26.8) (10.2) (37.8) % LyondellBasell Industries USD (13.4) (16.7) 10.3 (22.8) % Axiall Corp USD (29.9) (40.1) (38.3) % Huntsman Corp USD 8.63 (20.3) (25.1) (26.6) (37.2) % Asia Indorama Ventures THB (2.4) (20.7) 9.8 (17.9) % Mitsui Chemicals JPY (11.8) (9.7) % Sumitomo JPY (14.3) (17.9) % Formosa Chemicals & Fibre Corp TWD (4.7) 5.7 (4.9) % Lotte Chemical Corp KRW 275, (14.5) , ,500.0 NA NM Formosa Plastics Corp TWD (5.2) % LG Chem KRW 295, (11.4) (16.0) 29.3 (11.3) 344, , , % Indices Saudi Petrochemical Index SAR 3, (12.0) (19.7) (14.1) (44.2) 7, , % S&P500 Chemical Index USD (5.6) (10.7) (10.2) (11.6) % MSCI World Chemical Index USD (6.5) (10.1) (6.9) (10.5) % TASI SAR 5, (12.7) (17.2) (9.7) (32.3) 9, , %, Al Rajhi Capital Note: SAFCO dividends/yield adjusted for bonus shares. Prices as of January 31, Disclosures Please refer to the important disclosures at the back of this report. 11

12 Figure 34 Margins and Valuation Metrics - Saudi petrochemical companies vs. global peers Company Market Cap Operating margin Net margin P/E P/B EV/Sales EV/EBITDA ROE Operating_R OE ROA Saudi Arabia SABIC 211, x 1.5x 1.8x 6.2x SAFCO 28, x 5.0x 9.2x 12.7x Sipchem 4, x 1.3x 4.1x 10.0x NIC 5, (9.5) NA 1.0x 2.2x 11.1x (14.5) 0.3 (3.1) Yansab 17, x 1.7x 3.4x 8.0x APC 6, x 3.2x 2.8x 7.9x SPC 3, x 1.0x 4.6x 22.4x Saudi Kayan 7,500 (7.4) (15.6) NA 1.0x 4.1x 15.7x (9.3) (4.4) (2.8) PetroRabigh 8,488 (3.0) (3.0) 18.4x 1.5x 1.0x 14.0x (8.5) (8.5) (1.6) SIIG 5, x 1.3x 3.1x 10.0x Chemanol 650 (10.4) (19.0) 34.4x 0.7x 2.3x 8.5x (9.5) (5.2) (5.3) Nama 713 (20.1) (16.1) NA 0.9x 3.3x 119.3x (6.4) (8.0) (3.0) Alujain x 1.2x 1.7x 5.8x National Petrochemical 6, x 1.8x 2.9x 9.3x Middle East & Africa (ex-saudi Arabia) Industries Qatar 63, x 2.5x 13.4x 62.1x Mesaieed Petrochem 21,986 NA NA 20.9x 2.0x NA NA Sidi Kerir 5, x 3.2x 2.0x 4.6x Al Qurain x 0.6x 0.8x 7.6x Sasol 259, x 1.4x 1.5x 4.5x Europe BASF 56, x 2.2x 1.1x 7.4x Solvay 8, x 1.3x 1.0x 6.1x Lanxess 3, x 1.8x 0.7x 7.7x Arkema 4, x 1.2x 0.9x 8.0x Yara 89, x 1.6x 1.1x 6.5x Akzo Nobel 14, x 2.6x 1.2x 9.6x Clariant 5, x 2.6x 1.2x 8.8x North America Eastman 9, x 2.9x 1.8x 10.8x Dow 48, x 2.6x 1.3x 7.7x Westlake 5, x 2.3x 1.6x 5.4x Celanese Corp 9, x 3.0x 1.8x 11.1x Methanex 2, x 2.1x 1.9x 8.1x LyondellBasell Industries 35, x 5.0x 1.1x 6.2x Axiall Corp 1,266 (19.0) (19.6) 19.9x 0.7x 0.8x 8.5x (36.1) (35.1) (14.7) Huntsman Corp 2, x 2.4x 0.8x 9.8x Asia Indorama Ventures 101, x 1.3x 0.8x 11.4x Mitsui Chemicals 530, x 1.0x 0.6x 9.3x Sumitomo 998, x 1.2x 0.9x 8.1x Formosa Chemicals & Fibre Corp 418, x 1.5x 1.4x 15.4x Lotte Chemical Corp 9,425, x 1.2x 0.7x 5.7x Formosa Plastics Corp 490, x 1.6x 2.2x 25.8x LG Chem 19,583, x 1.2x 0.8x 6.1x Indices Saudi Petrochemical Index 307, x 1.5x 2.4x 9.1x S&P500 Chemical Index 355, x 4.0x 2.1x 10.6x MSCI World Chemical Index 857, x 2.6x 1.6x 9.4x TASI 1,370, x 1.8x 3.8x 11.9x , Al Rajhi Capital Notes: 1) Market cap in local currency. 2) Profit margins based on TTM performance. 3) All valuation ratios as on January 31, 2016 prices. Disclosures Please refer to the important disclosures at the back of this report. 12

13 IMPORTANT DISCLOSURES FOR U.S. PERSONS This research report was prepared by Al Rajhi Capital (Al Rajhi), a company authorized to engage in securities activities in Saudi Arabia. Al Rajhi is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution to major U.S. institutional investors in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act ). Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through Rosenblatt Securities Inc, 20 Broad Street 26th Floor, New York NY 5, a registered broker dealer in the United States. 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14 Disclaimer and additional disclosures for Equity Research Disclaimer This research document has been prepared by Al Rajhi Capital Company ( Al Rajhi Capital ) of Riyadh, Saudi Arabia. It has been prepared for the general use of Al Rajhi Capital s clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Al Rajhi Capital. Receipt and review of this research document constitute your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this document prior to public disclosure of such information by Al Rajhi Capital. The information contained was obtained from various public sources believed to be reliable but we do not guarantee its accuracy. Al Rajhi Capital makes no representations or warranties (express or implied) regarding the data and information provided and Al Rajhi Capital does not represent that the information content of this document is complete, or free from any error, not misleading, or fit for any particular purpose. This research document provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment products related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek financial, legal or tax advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that the price or value of such securities and investments may rise or fall. Fluctuations in exchange rates could have adverse effects on the value of or price of, or income derived from, certain investments. Accordingly, investors may receive back less than originally invested. Al Rajhi Capital or its officers or one or more of its affiliates (including research analysts) may have a financial interest in securities of the issuer(s) or related investments, including long or short positions in securities, warrants, futures, options, derivatives, or other financial instruments. Al Rajhi Capital or its affiliates may from time to time perform investment banking or other services for, solicit investment banking or other business from, any company mentioned in this research document. Al Rajhi Capital, together with its affiliates and employees, shall not be liable for any direct, indirect or consequential loss or damages that may arise, directly or indirectly, from any use of the information contained in this research document. This research document and any recommendations contained are subject to change without prior notice. Al Rajhi Capital assumes no responsibility to update the information in this research document. Neither the whole nor any part of this research document may be altered, duplicated, transmitted or distributed in any form or by any means. This research document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or which would subject Al Rajhi Capital or any of its affiliates to any registration or licensing requirement within such jurisdiction. Additional disclosures 1. Explanation of Al Rajhi Capital s rating system Al Rajhi Capital uses a three-tier rating system based on absolute upside or downside potential for all stocks under its coverage except financial stocks and those few other companies not compliant with Islamic Shariah law: "Overweight": Our target price is more than 10% above the current share price, and we expect the share price to reach the target on a 6-9 month time horizon. "Neutral": We expect the share price to settle at a level between 10% below the current share price and 10% above the current share price on a 6-9 month time horizon. "Underweight": Our target price is more than 10% below the current share price, and we expect the share price to reach the target on a 6-9 month time horizon. 2. Definitions "Time horizon": Our analysts make recommendations on a 6-9 month time horizon. In other words, they expect a given stock to reach their target price within that time. "Fair value": We estimate fair value per share for every stock we cover. This is normally based on widely accepted methods appropriate to the stock or sector under consideration, e.g. DCF (discounted cash flow) or SoTP (sum of the parts) analysis. "Target price": This may be identical to estimated fair value per share, but is not necessarily the same. There may be very good reasons why a share price is unlikely to reach fair value within our time horizon. In such a case we set a target price which differs from estimated fair value per share, and explain our reasons for doing so. Please note that the achievement of any price target may be impeded by general market and economic trends and other external factors, or if a company s profits or operating performance exceed or fall short of our expectations. Contact us Pritish K. Devassy, CFA Tel : devassyp@alrajhi-capital.com Al Rajhi Capital Research Department Head Office, King Fahad Road P.O. Box 5561 Riyadh Kingdom of Saudi Arabia research@alrajhi-capital.com Al Rajhi Capital is licensed by the Saudi Arabian Capital Market Authority, License No. 37/ Disclosures Please refer to the important disclosures at the back of this report. 14