IN Date 21-Nov-07 Industry Petrochemicals Current Market Price SR50 Sector Industrial Listing Tadawul, KSA No. of Issued Shares ( 000) 225,000 Code 2250 Price - Earnings (TTM) 22.9 Price Book value 3.7 Market Capitalization (SR '000) 11,250,000 % to Total Market 0.9% FINANCIAL SNAPSHOT 2005 2006 9M '06 9M '07 EPS (Annualized) SR 2.30 2.61 2.61 2.00 BV (SR) 12.93 12.95 12.29 13.45 Number of Shares ( 000) 180,000 225,000 225,000 225,000 SIIG is a joint stock company formed in 1996 for the purpose of raising the industrial base of the country through increased exports with an emphasis on the petrochemicals industry. To date, it has only one project operational. The second project is expected to commence commercial production in March next year and the third project is at the stage of financing. It has established a solid tie-up with a world leader - Chevron Philips Company. 1
IN FIRST PROJECT SIIG owns 50% in Saudi Chevron Philips Company (SCP) which produces Benzene, Cyclohexane and Motor Gasoline. It commenced operations in the year 2000. The other 50% is owned by Arabian Chevron Philips Petrochemical Limited Company. This project was down for 70 days and resumed normal production on 10th April 2007. During the year first project paid all its debt to SIDF as well as other debtors by the end of 2006. SECOND PROJECT SIIG also owns 50% in Jubail Chevron Philips Company which will produce 750 KTA of Styrene and 150 KTA of Propylene. Earlier, the estimated cost was SR 4.5 billion when the project began in the fourth quarter of 2004. Jubail project is seeing delays due to shortage of manpower with the contractor. As against earlier scheduled 4th quarter of 2007 for the mechanical completion, now the contractor is expected to complete his part by January 2008. As a result, commercial operations will begin towards the end of March 2008. THIRD PROJECT This project of SIIG is at the financing stage. Most recent estimates confirm the increase in cost. The scope of the project is also expanded after the addition of Adipic acid and Nylon Plant. The equity contribution from SIIG has thus gone up to SR 2.8 billion from SR 2.1 billion expected earlier. Third Project will also be a JV with Chevron Philips Company with the later holding 35%. SIIG will form a new company (Petrochem) which will eventually be owned by SIIG and the general public (50% each of the remaining 65%). IPO will be at par. UNRESOLVED MATTER OF ZAKAT The company provided objection on Zakat department s assessment for the following years and is awaiting reply from Zakat department. (SR 000) Zakat Deptt. Assessment Zakat paid 1997 3,338 292 1999 1,395 321 2
IN FINANCIALS SIIG has announced SR 380 million profits for the period ended October 2007 as compared to SR 482 million for the same period a year back. Year on Year results for first nine months shows a downturn because of scheduled shutdown of first project for 70 days. During the period, the company has completed joint between the first project (Saudi Chevron Philips Company) and the second project (Jubail Chevron Philips Company). Third quarter also witnessed drop in sales of some products. Year 2006 was the best in the history of the company as its Jubail plant operated in full capacity. SCP produced 20% more than previous year. Its output was 1,140 MT in 2006 as compared to 1,373 MT in 2005. (SR 000) Sales Cost of sales Gross Profit / Loss General & Administrative expenses Financial Charges Total Operating Expenses Operational Income Other Income / Expenses Net Profit Before Zakat & Minority Interests Zakat Net Profit 9M '06 1,178,798-738,824 439,974-31,266-635 -31,901 408,073 43,038 451,111-11,281 439,830 9M '07 1,041,450-681,428 360,022-58,607-259 -58,866 301,156 45,269 346,425-8,664 337,761 YoY -11.7% -7.8% -18.2% -59.2% 84.5% -26.2% 5.2% -23.2% -23.2% -23.2% (SR 000) Sales Cost of sales Gross Profit / Loss Selling & Marketing expenses General & Administrative expenses Financial Charges Total Operating Expenses Operational Income Other Income / Expenses Net Profit 2005 1,158,467-747,088 411,379-6,360-11,835-5,528-23,723 387,656 37,738 414,789 2006 1,573,933-1,004,431 569,502-3,151-16,860-1,050-21,061 548,441 56,244 586,950 YoY 35.9% 34.4% 38.4% -50.5% 42.5% -81.0% -11.2% 41.5% 49.0% 41.5% 3
IN Company has a strong track record. Financials of the last five years are impressive. Since 2003, the company has made a cumulative profit of SR 2,100 million. On a current capital of SR 2.25 billion, it represents more than 93% return of the capital till September 2007. Considering the long-term nature of the business, financials are impressive. INDUSTRY Petroleum industry is a cyclical industry with ups and downs related to build up of capacities resulting in supply moving ahead of demand and vice versa. Of late, the industry is showing a noticeable shift in structure. Used to operating closer to the consumers for ages, the producers are finally realizing the advantages of staying closer to the raw materials and sources of energy. (SR million) Sales Cost of sales Total G & A Expenses Other Income Zakat Net Income EPS ( SR ) * Annualized 2003 735.2-505 -23.8 6.2-5.3 207.3 1.73 A lot of hue and cry is raised by the European Union over the subsidized supply of gas to SABIC that breeds unfair advantage to the Middle East s largest listed company. After joining WTO, Saudi Arabia is under pressure to level the playing field. 5 YEAR TRACK RECORD 2004 1,246-658.4-37.2 16.8-14.2 553.0 4.61 2005 1,158.5-747.1-23.7 37.7-10.6 414.8 2.31 The products prices last year were as follows. Motor Gasoline showed the highest jump in the selling prices over last two years. PRODUCT PRICES ( USD / Ton ) 2004 2005 2006 1,573.9-1,004.4-21.1 56.3-17.7 587.0 2.61 2006 2004-05 9 M 07 1,041.5-681.4-58.9 45.3-8.7 337.8 *2.00 % CHANGE 2005-06 As a result, production capacity is concentrated in the Middle East region. Saudi Arabia and Iran are setting up huge plants that would go operational in stages starting first quarter of 2008. The industry cycle is in the up swing since 2001 and insiders are keeping their fingers crossed over the continuation of good times especially after 2009. Benzene Cyclohexane Motor gasoline 849 978 400 838 975 495 893 1042 629-1.3% -0.3% 23.8% 6.6% 6.9% 27.1% 4
IN CAPITAL INCREASE Post increase in cost of the third project, SIIG board has proposed to issue rights shares to fund its equity portion as follows: Rights issue to shareholders of SIIG SR 2,250 million at par and Retained earnings - SR 550 million. 140 120 100 80 60 RECOMMENDATION SIIG Vs TASI Third project IPO (Petrochem) will be offered at par to SIIG shareholders (for SIIG equity portion) as well as general public and as such opportunity is similar for both the categories except that existing shareholders will get guaranteed participation. In view of the recent strong rally in the market led by petrochemical stocks, stock has shown a decent run in the short span. Meeting for approval from shareholders is targeted towards the end of the year. With the additional issue of shares, the share capital will be doubled to SR 4.5 billion. 40 20 0 SIIG TASI 31-Dec-05 31-Jan-06 28-Feb-06 31-Mar-06 30-Apr-06 31-May-06 30-Jun-06 31-Jul-06 31-Aug-06 30-Sep-06 31-Oct-06 30-Nov-06 31-Dec-06 31-Jan-07 28-Feb-07 31-Mar-07 30-Apr-07 31-May-07 30-Jun-07 31-Jul-07 31-Aug-07 30-Sep-07 31-Oct-07 It is the first company from Saudi Stock Market to announce monthly profitability. Further, the new project in the pipeline and prospects for the second project look attractive. We expect the broader Saudi Stock Market to move up over a medium term of 3 to 5 years. Overall, short-term investors may book a profit but long-term investors can look forward to decent returns. Caution is warranted if petrochemical sector witnesses a sharp slowdown as it is showing positive trend since 2001. On the other hand, SIIG has been an under-performer to broader market since last two years. 5
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