Market Data Bloomberg Code: AB Reuters Code: 2310.SE CMP (22 nd Feb 2010): 23.15 O/S (mn): 333.3 Market Cap (SRmn): 7,715.9 Market Cap (US$mn): 2,057.6 P/E 2010e (x): 19.7 P/Bv 2010e (x): 1.5 Price Performance 1Yr High /Low (SR): 24.7/15.1 Average Volume: 1,281,008 Market Data 1m 3m 12m Absolute 8.7% 4.1% 23.6% Relative 8.8% 3.7% 3.2% Price Index Performance 7,000.0 6,500.0 6,000.0 5,500.0 5,000.0 4,500.0 4,000.0 3,500.0 Jan09 Mar09 May09 Jul09 Sep09 Nov09 Jan10 12.0 TASI LHS Source: Tadawul & Zawya RHS 26.0 24.0 22.0 20.0 18.0 16.0 14.0 Investment Update Saudi International Petrochemical Co. () Acetyl complex leads to strengthen economies of scale & margins. Production to increase at a CAGR of 31.9% during 200913. Improving capacity utilization rate & expanding product line. BUY Target Price SR 29.5 Key growth factor Saudi International Petrochemical Company () future growth is mainly associated with the newly built Acetyl complex during 4Q2009. The complex made the addition of new acetyl products while using most of its old products (methanol) as a feedstock. Hence, we believe, based on the complex s given production structure, it will allow the (i) company to further strengthen economies of scale and improve the overall company s capacity utilization, which will translate into an improvement in the company s future profitability margins during 201013 and (ii) reduce the dependence on methanol, which is facing tough regulatory issues in Western markets. Moreover, we believe the production from the complex will lead the company s overall production to increase at a CAGR of 31.9% during 200913. Lower average prices lead to a decline in 2009 profitability The company s profitability during 2009 has recorded a huge fall of 73.8% from the after tax profit of SR536.8recorded in 2008. The decline in profitability was mainly due to a massive fall in the average prices on account of financial crisis observed in 4Q2008. Moreover, the impact of the provision reversals amounting SR75.0mn, during 2009, remained limited due to the decline in investment income by SR48.2mn in 2009. Prices in International markets to remain strong We believe the average prices of OPEC crude oil will remain in the range of US$75.0 to US$80.0 per barrel during 2010. Furthermore, the long term prices of OPEC crude oil are expected to remain in the range of US$80.085.0 per barrel during 200913. Strong fundamentals lead to upward revision in valuation In view of the upward revision in the capacity utilization & increasing average prices from our previous estimates, going forward, we have made upward revision in our DCF base fair value of the company to SR29.5. This indicates, at present, the stock is offering potential upside of 27.3% from current market price. However, based on our earnings forecast, the stock is trading at prospective 2010 P/E and 2011 P/E of 19.7x and 15.1x, respectively. We, therefore, recommend BUY for the stock. Syed Taimure Akhtar Senior Financial Analyst sakhtar@globalinv.com.sa Phone No:(966) 12199966 Ext.: 950 Table 01: Investment Indicators Net Profit (SRmn) EPS (SR) BVPS (SR) ROA (%) P/E (x) P/BV (x) 2013 (E) 677.3 2.0 17.9 5.3% 11.39 1.29 2012 (E) 572.9 1.7 16.9 4.6% 13.47 1.37 2011 (E) 511.5 1.5 16.1 4.1% 15.09 1.44 2010 (E) 390.7 1.2 15.3 3.2% 19.75 1.51 2009 (A) 140.9 0.4 14.8 1.2% 56.31 1.61 Source: Company Annual Reports & Global Research *Historical P/E & P/BV multiples pertain to respective yearend prices, while those for future years are based on closing prices on the Tadawul as of 22nd Feb 2010. 1
Valuation & Recommendation DCF Method We have used discounted cash flow (DCF) methodology to value and used Capital Asset Pricing Model (CAPM) to calculate the cost of the equity, which is based on the following assumptions: A riskfree rate of 5.6% has been assumed. A market risk premium of 6.0% has been assumed. Beta taken from Bloomberg and taken at 1.1. The cost of equity derived from the above assumptions using the Capital Asset Pricing Model (CAPM) is 12.1%. The cost of debt has been assumed at 7.0%. Based on the above assumptions, the Weighted Average Cost of Capital (WACC) works out to be 10.7%. We have assumed the terminal growth rate at 3.0%. Based on our future earnings projections and the above assumptions for, we have arrived at the DCF base value of SR29.5 for. Table 02: DCF Base Valuation (SR Mn) 2010 (E) 2011 (E) 2012 (E) 2013 (E) FCF 556.5 714.6 941.0 1,120.3 Discounted Cash Flow 507.8 589.1 700.8 753.6 Terminal Value 14,985.4 Primary Value 2,551.3 Terminal Value (discounted) 10,080.7 Company s Net Present Value 12,632.1 LongTerm Debt (4,854.9) Add: Investments & Cash Equivalents 2046.9 Net Worth 9,824.1 Shares Outstanding ( 000) 333,333 Fair Value Per Share 29.5 Source: Global Research Sensitivity Analysis A sensitivity analysis for different estimated longrun future growth rates and weighted cost of capital is shown in table below. The table provides estimated DCF based fair values for share based on a range of varying inputs. The shaded area at the center shows the most probable range of alternatives. Table 03: DCF Base Valuation Terminal Growth Rates 2.00% 2.50% 3.00% 3.50% 4.00% 8.70% 36.6 39.7 43.5 47.9 53.3 9.70% 30.4 32.8 35.4 38.5 42.1 10.70% 25.7 27.5 29.5 31.7 34.3 11.70% 22.0 23.4 24.9 26.6 28.5 12.70% 19.0 20.1 21.3 22.6 24.1 Source: Global Research WACC Valuation Based on our valuations, at present, the stock is trading at a prospective 2010 and 2011 P/E of 19.7x and 15.1x, respectively, and offering the potential upside of 29.3% from the current market price of SR23.1 as on 22nd Feb 2010. We, therefore, recommend from BUY for the stock. 2
Saudi International Petrochemical Company Financial Update Acetyl Complex A Well Integrated Complex The successful completion of Acetyl complex during 4Q2009 was the major milestone that the company has achieved last year. The complex has added new production lines, which include the capacity to produce 345,000 tons of Carbon Monoxide (Co), 460,000 tons of acetic acid 50,000 tons of Acetic Anhydride (Aan) and vinyl acetate monomer (VAM). The complex is well integrated and designed to utilize the inhouse production of methanol (around 20.0%25.0%) and Co as a feed stock to produce Acetic Acid (AA). Moreover, more than 50.0% of AA is expected to consume internally as feedstock to generate VAM. Figure: Acetyl Complex Production Flow H2 Co Plant AA Plant VAM Natural Gas Methanol Ethylene Oxygen Common Utilities Port Facilities Complexes Feed Stock Source: Prospectus & Global Research We believe the given production flow at the complex will allow the company to increase the utilization of inhouse production as a feedstock and lead to generate the demand in excess to the market, going forward. Hence, we believe the company will run its production facilities on better utilization rate during 200913. Sales Revenue Growth Improvement in prices & production The company has recorded a decline of 51.4% in the overall sales revenue during 2009 to SR830.0mn as compared to the sales revenues of SR1.7bn in 2009, which was mainly due to the (i) lower average annual prices and (ii) weak demand in international market and caused a decline in capacity utilization and translated in to a decline of 27.1% in the company s overall production. 3
Chart 01: Production Growth Chart 02: Sales Revenue Growth 2,500.0 2,000.0 1,500.0 1,000.0 500.0 9.5% 25.5% 27.1% 109.3% 22.5% 6.1% 11.4% 130.0% 110.0% 90.0% 70.0% 50.0% 30.0% 10.0% 10.0% 3,000.0 2,500.0 2,000.0 1,500.0 1,000.0 500.0 14.5% 11.8% 51.4% 98.7% 20.9% 7.5% 12.9% 125.0% 105.0% 85.0% 65.0% 45.0% 25.0% 5.0% 15.0% 35.0% 30.0% 55.0% Production ('000' tons) LHS Growth RHS Sales Revenue (SR mn) LHS Growth RHS Going forward, based on the expected improvement in capacity utilization, we believe the company s production will increase at a CAGR of 31.9% during 200913 to 2.0mn tons in 2013 and lead the company s overall top line to show a massive growth of 98.7% in 2010. Furthermore, in term of CAGR the company s overall sales is expected to increase at a CAGR of 30.7% during 200913, which is mainly based on the expectations of the (i) improvement in prices, (ii) increase in production, on account of Acetyl complex and (iii) 2009 low base effect. Higher Economies of Scales Improvement in Gross Margin On account of depressed global situation during 1H2009, the company s gross margins during 2009 dropped down significantly to 28.4% from 59.4% recorded in 2008. However, the combined effect of improvement in the average prices and capacity utilization expected during 200913 will lead the company to achieve higher economies of scale and will translate into better gross margins. Chart 03: Gross Margins 1,600.0 1,400.0 1,200.0 1,000.0 800.0 600.0 400.0 200.0 59.4% 57.5% 59.8% 55.5% 62.4% 52.0% 28.4% 65.0% 60.0% 55.0% 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% Gross Profit (SR mn) Gross Profit Margin Based on our expectations, the company s gross margin during 2010 are expected to show a remarkable recovery to reach at 52.7%. Moreover, going forward, we expect the company s gross margin will remain at the average level of 56.5% during 201013 as compared to 4year historical average of 52.9% during 200609. PBT Margin Trending Upward Despite of decline in the financial cost and reversal in provision during 2009, the company profit before tax (Zakat) margin has drastically shown a decline to 21.8% in 2009 as compared to 33.2%in 2008, which was mainly due to the (i) decline gross in gross margins and (ii) massive fall in investment income, which has limited the positive impact of lower financial cost and reversal in provisions amounting SR75.0mn in 2009. 4
Chart 04: Financial Cost & PBT Margin Chart 05: Investment Income Growth 120.0 100.0 80.0 60.0 40.0 20.0 40.2% 33.2% 21.8% 24.9% 27.0% 28.1% 29.4% 45.0% 40.0% 35.0% 30.0% 25.0% 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 40.5% 9.1% 76.8% 28.8% 5.6% 6.0% 6.6% 60.0% 40.0% 20.0% 0.0% 20.0% 40.0% 60.0% 20.0% 80.0% Financial Cost (SRmn) LHS PBT Margin RHS Financial Income (SRmn) LHS Growth RHS Going forward, based on the slow recovery in financial markets, we expect the income from investment will remain on lower side and increase at a CAGR of 4.5% during 201013, while the financial charges are expected to increase at a CAGR of 3.0% during 201113. Hence, we expect the company s PBT margin will show an improvement in 2010 and continue its upward movement, going forward. Profitability Growth The company has posted after tax profit of SR140.9mn during 2009, which is 73.8% lower than the profitability recorded in 2008. However, the company s profitability is expected to show a remarkable recovery of 177.4% in the bottom line to SR390.7mn in 2010 and increase at a CAGR of 48.1% during 200913. Chart 06: Profitability & ROAA Chart 07: Profitability & ROAE 800.0 700.0 600.0 500.0 400.0 300.0 200.0 100.0 9.1% 5.8% 1.2% 3.2% 4.1% 4.6% 5.3% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 800.0 700.0 600.0 500.0 400.0 300.0 200.0 100.0 22.0% 13.5% 2.8% 7.8% 9.8% 10.4% 11.7% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 0.0% Profit after Tax (SR mn) LHS ROAA RHS Profit after Tax (SR mn) LHS ROAE RHS We expect the company s prospective ROAA and ROAE will remain in the average range of 4.0%5.5% and 9.0%10.5% during 201013, respectively. 5
Petrochemical Sector Regional Petrochemical Capacity Expansion Though there were some delays happening in regional upcoming capacities but the countries remained committed to their expansion plans and did not cancel much of the projects. We believe the delay in these projects was mainly attributed toward the size and intention to further stream line the designed production flows, while we cannot rule out the impact of global economic slowdown. Chart 08: Regional Petrochemical Capacity Expansion 100,000.0 90,000.0 80,000.0 70,000.0 60,000.0 50,000.0 40,000.0 30,000.0 20,000.0 10,000.0 4.6% 1.2% 15.2% 0.1% 7.9% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Production Capacity ('000' ton) Growth Source: FAO & Global Research Based on the updated completion plans of upcoming complexes, we expect the major regional capacity expansions will happen in 2010 and lead to the addition of 9.0% in the regional basic chemicals (aromatic, olefins and oxygenate) capacity. Moreover, in term of CAGR the regional basic chemical capacity is expected to increase at a CAGR of 4.7% during 200913 to 116.2mn tons. Table 04: Regional Petrochemical Capacity Expansion Project Names Country Olefins Aromatic Oxygenate Expected Completion SinoSaudi Petrochemical KSA 1,700,000 2010 Project Saudi Kayan KSA 3,800,000 3Q2010 Yanbu National Petrochemical KSA 1,815,000 240,000 1Q2010 Styrene Plant KSA 600,000 2010 Eastern Petrochemical KSA 2,000,000 1Q2010 SHARQ Gulf Petrochemical Industries Bahrain 1,728,000 2010 Co. Salalah Methanol Plant Oman 1,080,000 2Q2010 QP/Shell Qatar 1,500,000 2011 Qatar Petrochemical Complex Qatar 880,000 600,000 2012 Ras Laffin Petrochemical Qatar 1,300,000 2012 Borogue 2 UAE 39,000 2Q2010 Ruwais Gasoline and Aromatics UAE 600,000 2010 Total 13,034,000 1,800,000 3,048,000 Source: Zawya & Global Research 6
Furthermore, based on the availability of feedstock gas at highly subsidized price in the region, we believe the region will be in the better position to react first and take advantage on the future recovery as compared to the other international players. Furthermore, the advantage of the availability of gas at highly subsidized will lead the region to keep their capacity utilization on higher rate than the International level in future. Saudi Arabia Petrochemical Sector Most of the regional petrochemical production facilities are located inside the Kingdom followed by the State of Qatar. Based on our calculations, the Kingdom is expected to maintain its domination in the overall regional capacity during 200913. However, based on the given regional expansion plans, the contribution from the Kingdom is expected to remain stagnant during 201013. Meanwhile, the expected capacity expansions from the State of Qatar and Bahrain will lead these countries to show a significant improvement in the regional contribution during 201013. Chart 09: KSA Regional Contribution 2009 Chart 10: KSA Regional Contribution 2013 Qatar 10.6% UAE 2.0% Oman Kuwait 3.7% 8.7% Bahrain 0.7% Qatar 14.1% Oman Kuwait 4.2% 7.0% UAE 2.4% Bahrain 2.5% KSA 74.4% KSA 69.8% Furthermore, based on the given expansion plans, the Kingdom is expected to make the addition of around 8.6mn in the domestic basic chemical capacity by 2013, which shows the Kingdom is expected to contribute 50.6% in overall regional capacity expansion by 2013. Consequently, this will lead the domestic basic chemical production capacity to increase to 61.8mn tons by 2013 at a CAGR of 3.8% during 200913. Chart 11: Basic Chemical Capacity Growth Chart 12: Production & Capacity Utilization 00.0 00.0 00.0 00.0 0.1% 5.6% 11.9% 8.6% 3.3% 1.8% 1.7% 14.0% 12.0% 10.0% 8.0% 60,000.0 50,000.0 40,000.0 30,000.0 101.1% 67.0% 83.3% 86.6% 89.1% 95.3% 105.0% 100.0% 95.0% 90.0% 85.0% 00.0 00.0 00.0 6.0% 4.0% 2.0% 20,000.0 10,000.0 80.0% 75.0% 70.0% 0.0% 2008 2009 2010E 2011E 2012E 2013E 65.0% Capacity ('000' mn) LHS Growth RHS Production ('000' tons) LHS Capacity Utilization RHS Based on our calculations, the domestic capacity utilization has shown a significant fall during 2009, which is expected to show improvement in coming years. The expectations of improvement 7
in the domestic capacity utilization is mainly based on the (i) upcoming well integrated capacities, (ii) forecasted improvement in the global economies with better pace from 2H2010 onwards and (iii) revival in the domestic demand of petrochemical products. Consequently, this will lead the Kingdom s overall petrochemical production to increase at a CAGR of 16.7% during 200913 to 56.1mn tons. Moreover, the ongoing weak demand in the corepetrochemical products (i.e. basic, intermediaries and polymers) in Western and US markets is still a big challenge for the Kingdom s leading producers to maintain their exports. Feedstock & Petrochemical Product Prices Natural gas is the main feedstock for petrochemical and related products and crude oil prices are used as a benchmark to set gas prices in international markets. However, gas prices are highly subsidized in certain regions of the world such as MiddleEast, Northern Africa, and South Asia where predetermined discounts exist which fix the price to US$0.75 per mmbtu (in Saudi Arabia) to US$2.5 per mmbtu (North Africa and South Asia). In view of improvement in crude oil prices during 2H2009, we expect the average prices of crude oil will remain in the range of US$75.0 to US$80.0 per barrel during 2010 an increase of 23.0% to 31.0% over average prices recorded in 2009. Chart 13: Crude Oil & Gas Prices Chart 14: Basic Petrochemical Product Prices 100.0 8.5 4,500.0 2,500.0 95.0 90.0 85.0 80.0 75.0 70.0 65.0 7.5 6.5 5.5 4.5 3.5 4,000.0 3,500.0 3,000.0 2,500.0 2,000.0 1,500.0 1,000.0 500.0 2,000.0 1,500.0 1,000.0 500.0 60.0 OPEC Crude Oil (US$ per barrel) LHS 2.5 2007A 2008A 2009A 2010E 2011E 2012E 2013E Ethylene (US$ per ton) LHS Propylene (US$ per ton) LHS Butadiene (US$ per ton) LHS Methanol (US$ per ton) RHS Gas Prices (US$ per mmbtu) RHS MTBE (US$ per ton) RHS Benzene (US$ per ton) RHS Source: EIA, OPEC & Global Research Source: Bloomberg, & Global Research Furthermore, on the back of improvement in global situation, we believe the long term prices of crude oil to remain in the range of US$80.085.0 per barrel during 200913 keeping in mind the slow global economic recovery. Subsequently, the longterm average prices of gas are expected to remain in the range of US$4.0 to US$5.25 per mmbtu during 200913. We believe the expected stability in the average prices of feedstock prices will lead the average prices the petrochemical products to increase at a CAGR of 7.0% during 200913. Furthermore, based on our expectations, the average prices per ton of ethylene, propylene, methanol, MTBE, benzene, and butadiene, during 200913 will remain in the range of US$950.01050, US$1,100.01,175.0, US$270.0285.0, US$850.0925.0, US$850.0925.0, and US$1,450.01,550.0 respectively. 8
Balance Sheet Saudi International Petrochemical Company () (SR 000 ) 2007 2008 2009 2010 (E) 2011 (E) 2012 (E) 2013 (E) Assets Current Assets Cash and Equivalents 1,562,011 2,581,034 1,833,199 2,046,992 2,107,062 2,211,633 2,319,670 Inventories 101,764 106,728 78,682 107,267 154,174 162,497 181,590 A/R, P. Payment & R/A 330,975 153,861 331,753 412,566 459,030 471,938 508,453 Total Current Assets 1,994,750 2,841,623 2,243,634 2,566,825 2,720,266 2,846,068 3,009,713 NonCurrent Assets Plant & PropertyNet 5,416,418 7,682,106 9,511,338 9,602,572 9,671,270 9,715,433 9,733,080 Project Development Cost 170,739 109,733 45,257 45,710 46,167 46,628 47,095 Intangible Assets 168,143 199,924 31,091 31,402 31,716 32,033 32,353 Other Assets Total NonCurrent Assets 5,755,300 7,991,763 9,587,686 9,679,683 9,749,153 9,794,094 9,812,528 Total Assets 7,750,050 10,833,386 11,831,320 12,246,508 12,469,419 12,640,163 12,822,240 Liabilities and Equities Current Liabilities Trade Creditors 1,112,692 803,601 633,352 760,022 836,025 919,627 1,011,590 Short term advances to shareholders 29,928 19,491 22,415 25,777 29,643 34,090 Short term loans 878,250 Current Portion of Long term loans 140,503 133,064 85,267 142,928 184,853 221,824 210,733 Current Portion of Capital Lease 32,108 42,811 42,811 43,239 43,672 44,108 44,549 Total Current Liabilities 2,163,553 1,009,403 780,921 968,604 1,090,326 1,215,203 1,300,962 NonCurrent Liabilities LongTerm Debt 1,085,496 3,106,393 4,376,122 4,157,316 3,741,584 3,180,347 2,544,277 EndOfService Indemnities 19,807 33,531 40,318 40,318 40,318 40,318 40,318 Obligation Under Capital Lease 486,973 444,162 401,351 440,503 441,453 442,308 443,077 SubOrdinate Loans From Minority Shareholders 102,052 135,131 257,133 257,133 257,133 257,133 257,133 Fair Value of Interest Rate Swap 246,501 143,523 150,699 158,234 166,146 174,453 Total NonCurrent Liabilities 1,694,328 3,965,718 5,218,447 5,045,969 4,638,722 4,086,251 3,459,258 Total Liabilities 3,857,881 4,975,121 5,999,368 6,014,573 5,729,049 5,301,454 4,760,220 Shareholders' Equity Share Capital 2,000,000 3,333,333 3,333,333 3,333,333 3,333,333 3,333,333 3,333,333 Statutory Reserves 176,948 864,300 932,907 971,981 1,023,128 1,080,422 1,148,157 General Reserves 275,000 275,000 275,000 275,000 275,000 275,000 275,000 Retained earnings 544,930 692,500 483,758 637,455 839,441 1,066,020 1,334,357 Change in Fair Value of Interest Rate Swap (200,539) (102,917) (104,975) (107,075) (109,216) (111,401) Total Equity 2,996,878 4,964,594 4,922,081 5,112,794 5,363,826 5,645,559 5,979,446 Minority Interest 895,292 893,673 909,872 1,119,143 1,376,545 1,693,151 2,082,575 Total Shareholders' Equity & Minority Interest 3,892,170 5,858,267 5,831,953 6,231,936 6,740,372 7,338,710 8,062,021 Total Liabilities, Shareholders' Equity & Minority Interest 7,750,050 10,833,386 11,831,320 12,246,508 12,469,419 12,640,163 12,822,240 Source: Company Reports, Global Research 9
Income Statement Saudi International Petrochemical Company () (SR 000 ) 2007 2008 2009 2010 (E) 2011 (E) 2012 (E) 2013 (E) Sales 1,527,675 1,708,580 830,401 1,650,265 1,995,785 2,145,174 2,421,203 Cost of Sales (574,984) (693,843) (594,413) (791,968) (888,184) (911,475) (972,982) Gross Profit 952,691 1,014,737 235,989 858,297 1,107,600 1,233,699 1,448,221 General & Administration Expenses (56,850) (70,600) (67,683) (82,513) (99,789) (107,259) (121,060) Operating Income 895,841 944,137 168,306 775,784 1,007,811 1,126,440 1,327,161 Investment Income 69,000 62,716 14,554 10,366 10,945 11,606 12,367 Financial Charges (100,186) (79,069) (45,751) (38,320) (39,876) (41,495) (43,180) Net Expenses of PreOperating Activities (857) 503 (1,707) Provision of developmental cost (77,600) 75,000 Income Before Minority Interest & Zakat 863,798 850,687 210,402 747,831 978,880 1,096,552 1,296,349 Minority Interest (250,019) (283,526) (29,163) (336,524) (440,496) (493,448) (583,357) Net Income Before Zakat 613,779 567,161 181,239 411,307 538,384 603,104 712,992 Zakat (19,807) (30,376) (40,358) (20,565) (26,919) (30,155) (35,650) Net Income 593,972 536,785 140,881 390,742 511,465 572,948 677,342 P&L Appropriation A/C Opening Balance 787,955 544,930 692,500 483,758 637,455 839,441 1,066,020 Net Income of the year 593,972 536,785 140,881 390,742 511,465 572,948 677,342 Transfer to Statutory Reserves (59,397) (20,685) (68,607) (39,074) (51,146) (57,295) (67,734) Dividend (365,930) (278,416) (195,371) (255,732) (286,474) (338,671) Bonus (500,000) General Reserves (275,000) Directors' Remuneration (2,600) (2,600) (2,600) (2,600) (2,600) (2,600) (2,600) Ending Balance 544,930 692,500 483,758 637,455 839,441 1,066,020 1,334,357 Source: Company Reports, Global Research 10
Cash Flow Statement Saudi International Petrochemical Company () (SR 000 ) 2007 2008 2009 2010 (E) 2011 (E) 2012 (E) 2013 (E) OPERATING ACTIVITIES Profit Before Zakat 613,779 567,161 181,239 411,307 538,384 603,104 712,992 Depreciation 153,987 153,424 161,107 362,899 374,270 369,818 367,682 Amortization 41,333 47,130 6,788 Financial Cost 31,232 20,866 38,320 39,876 41,495 43,180 Investment Income (8,692) (8,909) (9,132) (9,360) Minority Interest 250,019 283,526 29,162 209,271 257,403 316,605 389,425 Other Income 171 (1,674) (2,035) (2,474) (3,007) Net expenses of preoperating expenses 857 (503) 1,707 Zakat Paid (81,037) (73,015) (37,457) (20,565) (26,919) (30,155) (35,650) Other Cash Flow from Operations 6,850 91,413 (75,000) Change in Working Capital 290,870 111,635 (363,355) 20,195 (14,007) 66,239 40,801 Net Cash from operating activities 1,307,890 1,201,548 (95,814) 1,011,060 1,158,062 1,355,499 1,506,062 INVESTING ACTIVITIES Purchase of Plant & Property (2,153,597) (2,673,792) (1,623,340) (454,585) (443,426) (414,442) (385,795) PreOperating Expenses (857) 503 (1,707) Other NonCurrent Assets (145,294) (121,417) 180,520 15,484 16,380 17,376 18,490 Cash Flows from Investing Activities (2,299,748) (2,794,705) (1,444,528) (439,101) (427,046) (397,066) (367,304) FINANCING ACTIVITIES LongTerm Financing (67,555) (878,250) (10,436) (218,806) (415,732) (561,238) (636,069) ShortTerm Financing 878,250 1,981,350 1,179,122 39,580 1,382 1,291 1,210 Proceeds from Issuance of shares 1,967,008 Directors' Remuneration (2,600) (2,200) (2,600) (2,600) (2,600) (2,600) (2,600) Dividend Paid (333,333) (335,533) (195,371) (255,732) (286,474) (338,671) Other Financing Activities 238,656 (122,394) (38,047) 19,030 1,736 (4,841) (54,591) Cash Flows from Financing Activities 1,046,751 2,612,180 792,506 (358,166) (670,946) (853,862) (1,030,721) Increase / Decrease in Cash 54,894 1,019,023 (747,835) 213,793 60,070 104,572 108,037 Cash Beginning Balance 1,507,117 1,562,011 2,581,034 1,833,199 2,046,992 2,107,062 2,211,633 Cash Ending Balance 1,562,011 2,581,034 1,833,199 2,046,992 2,107,062 2,211,633 2,319,670 Source: Company Reports, Global Research 11
Fact Sheet Saudi International Petrochemical Company () 2007 2008 2009 2010 (E) 2011 (E) 2012 (E) 2013 (E) Liquidity Ratios Current Ratio 0.9 2.8 2.9 2.7 2.5 2.3 2.3 Cash Ratio 0.7 2.6 2.3 2.1 1.9 1.8 1.8 Profitability Ratios Gross Margin 62.4% 59.4% 28.4% 52.0% 55.5% 57.5% 59.8% EBITDA Margin 71.1% 65.5% 75.0% 69.5% 69.7% 70.2% 70.4% EBIT Margin 61.1% 53.8% 31.1% 47.5% 50.9% 52.9% 55.2% Net Profit Margin 38.9% 31.4% 17.0% 23.7% 25.6% 26.7% 28.0% ROAE 22.0% 13.5% 2.8% 7.8% 9.8% 10.4% 11.7% ROAA 9.1% 5.8% 1.2% 3.2% 4.1% 4.6% 5.3% Leverage Ratios Debt to Equity 0.36 0.63 0.89 0.81 0.70 0.56 0.43 Debt to Asset 14.0% 28.7% 37.0% 33.9% 30.0% 25.2% 19.8% Liabilities/Total Assets (x) 0.50 0.46 0.51 0.49 0.46 0.42 0.37 Growth Rates Revenue Growth Rate 14.5% 11.8% 51.4% 98.7% 20.9% 7.5% 12.9% Net Income Growth Rate 20.3% 9.6% 73.8% 177.4% 30.9% 12.0% 18.2% Equity Growth Rate 24.6% 65.7% 0.9% 3.9% 4.9% 5.3% 5.9% Total Asset Growth Rate 47.3% 39.8% 9.2% 3.5% 1.8% 1.4% 1.4% Ratios Use for Valuation Number of Shares (mn) 200.0 333.3 333.3 333.3 333.3 333.3 333.3 Par value per share (SR) 10.0 10.0 10.0 10.0 10.0 10.0 10.0 Dividend Yield 0.0% 7.1% 3.5% 2.5% 3.3% 3.7% 4.4% BV per share (SR) 15.7 14.9 14.8 15.3 16.1 16.9 17.9 EPS (SR) 1.8 1.6 0.4 1.2 1.5 1.7 2.0 Market Price (SR) 44.1 15.5 23.8 23.2 23.2 23.2 23.2 Market Cap in (SR Mn) 8,820.0 5,166.7 7,933.3 7,716.7 7,716.7 7,716.7 7,716.7 EV (SR Mn) 14,223.5 5,692.0 10,476.3 9,827.0 9,351.2 8,685.4 7,941.3 EV/EBITDA 13.1 5.1 16.8 8.6 6.7 5.8 4.7 P/E Ratio 24.7 9.6 56.3 19.7 15.1 13.5 11.4 P/BV Ratio 2.8 1.0 1.6 1.5 1.4 1.4 1.3 Source: Company Reports, Global Research Note: P/E and P/BV for 20072009 are based on historical prices as on year end. Future P/E and P/BV are based on closing price as on 22nd February 10. 12
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The following is a comprehensive list of disclosures which may or may not apply to all our researches. Only the relevant disclosures which apply to this particular research has been mentioned in the table below under the heading of disclosure. Disclosure Checklist Company Recommendation Ticker Price Disclosure Saudi International Petrochemical Company () Buy AB 2310.SE SR29.5 1, 10 1. did not receive and will not receive any compensation from the company or anyone else for the preparation of this report. 2. The company being researched holds more than 5% stake in. 3. makes a market in securities issued by this company. 4. acts as a corporate broker or sponsor to this company. 5. The author of or an individual who assisted in the preparation of this report (or a member of his/her household) has a direct ownership position in securities issued by this company. 6. An employee of serves on the board of directors of this company. 7. Within the past year, has managed or comanaged a public offering for this company, for which it received fees. 8. has received compensation from this company for the provision of investment banking or financial advisory services within the past year. 9. expects to receive or intends to seek compensation for investment banking services from this company in the next three month. 10. Please see special footnote below for other relevant disclosures. Global Research: Equity Ratings Definitions Global Rating Definition Buy Hold Reduce Sell Fair value of the stock is >10% from the current market price Fair value of the stock is between +10% and 10% from the current market price Fair value of the stock is between 10% and 20% from the current market price Fair value of the stock is < 20% from the current market price This material was produced by Saudia, a firm regulated by the Capital Market Authority of KSA. This document is not to be used or considered as an offer to sell or a solicitation of an offer to buy any securities Information and opinions contained herein have been compiled or arrived by Global Saudia from sources believed to be reliable, but Global Saudia has not independently verified the contents of this document. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. Global Saudia accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Global shall have no responsibility or liability whatsoever in respect of any inaccuracy in or omission from this or any other document prepared by Global Saudia for, or sent by Global Saudia to any person and any such person shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this or other such document. Global investment house Saudia is authorized and regulated by the Capital Market Authority (CMA) in the Kingdom of Saudi Arabia. License Number 0706737. 15
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