Saudi International Petrochemical Co.
SIPCHEM
June 2013
KSA | Petrochemical Sector | Event Update
Please read Disclaimer on the back
SIPCHEM & Sahara Petrochemical merger talks
Saudi International Petrochemical Chemical Company (SICPHEM) announced recently for the start of merger talks with Sahara
Petrochemical Company (Sahara). The focus of this update is to highlight the potential opportunities; if the deal will be executed
successfully. Since the disclosure is limited and the deal is in a very early stage so we are not able to translate the impact on our valuation.
However, based on the operational focus of both companies, we believe the successful merger deal will further (i) strengthen operational
synergies in SIPCHEM; and (ii) expand the company’s existing production line to basic olefins and related derivate & polymers.
In addition, it is worthy to mention that one of the affiliates of SIPCHEM, recently, signed a financing agreement of SAR257.5mn to
produce poly butylene terephalate (PBT). It should be noted that we have already incorporated the impact of PBT in our valuation.
A merger could lead to more effective unified management
The successful implementation of the proposed deal will effectively allow the management of the two companies (i.e. SIPCHEM & Sahara)
to better integrate business with their partner companies (Ma’aden, Tasnee and Sadara).
Possible changes in operations & production mix
We believe the merger will lead to increase the operational scope of SIPCHEM from highly specialized products to other basic olefin and
polyolefin products. On the other hand, Sahara facilities will be in a better position to utilize SIPCHEM logistics i.e. European marketing
company. Moreover, the merger could lead the SIPCHEM to renegotiate its deal to get ethylene feedstock (from SABIC) to its IPC plants;
where SIPCHEM could meet the required ethylene feedstock from the capacity at SEPC. Based on the existing production process of SIPCHEM
and upcoming projects of Sahara (as indicated earlier), we believe the merger will lead to enhance the overall operational integration.
Consequently, this will lead the potential unified (SIPCHEM + Sahara) company to effectively manage their profitability margins.
Possible change in production mix
Existing production mix;
before merger
SIPCHEM
Sahara
Existing production line
Exsiting production line
Methanol
BDO/THF
CO
AA/Aan
VAM
EA/BA
Planned production line
Planned production line
Propylene
Polypropylene
Ethylene
HDPE & LDPE
PBT
EVA
LDPE
XLPE,conductors&
insulators
n-butaanol
Glacial Acrylic Acid
Butyl Acrylate
Different variation of polymers
Potential production mix;
after merger
SIPCHEM + Sahara
Existing production line
Methanol
BDO/THF
CO
AA/Aan
VAM
EA/BA
Propylene
Polypropylene
Ethylene
HDPE & LDPE
Planned production line
n-butaanol
Glacial Acrylic Acid
Butyl Acrylate
Different variation of
polymers
Iso-butyraldehyde
PBT
EVA
XPLE, conductors &
insulators
Source: Company’s annual report, SIPCHEM Sukuk 2011 prospectus & Aljazira Capital
Impact on SIPCHEM valuation – Since the disclosure is limited as the proposed deal is in its initial stages so, we believe, it is too early to
incorporate and adjust our valuation for SIPCHEM, accordingly. Hence, we maintain our 12-month price target of SAR24.1/share. However,
any further development (with some financial related disclosure) will lead us to make subsequent revision on our 12-month price target.
Key financial
financial updates
Information
Key
Number of shares issued (mn)
Share capital (SARmn)
Market price (11 th June 2013)
Market capitalization (SARmn)
EV/EBITDA (TTM) *
P/E (TTM) *
BV (SAR) (TTM) *
PBV (TTM) *
Debt/Capital ratio
Debt to equity ratio
Financial leverage ratio
1
SIPCHEM
367
3,667
22.65
8,305.0
9.55
16.16
14.79
1.53
0.49
0.99
2.7
Sahara
438.8
4,388.0
15.05
6,603.9
22.36
22.93
12.14
1.24
0.27
0.37
1.5
Source: Annual reports, Bloomberg, * Trailing 12 months
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Senior Analyst
Analyst
Syed Taimure Akhtar
Saleh AlQuati
s.akhtar@aljaziracapital.com.sa
+966-2-6618271
s.alquati@aljaziracapital.com.sa
+966-2-6618253
Saudi International Petrochemical Co.
SIPCHEM
KSA | Petrochemical Sector | Event Update
June 2013
Please read Disclaimer on the back
Sahara Petrochemical Company (Sahara) - The company’s principal activities are to invest in the industrial projects; especially
in the petrochemical and chemical fields. By the end of 2012, the company invested in the following key projects;
•
Al Waha Petrochemical Company (Al Waha) – Sahara owns 75% stakes while 25% is owned by Bassel Arabian Investment. The
complex has a designed capacity to produce 467.6 thousand tons of propylene, which will use as a feedstock to produce 450.0
thousand tons polypropylene. The facility started its commercial operation in 2Q2011.
•
Tasnee & Sahara Olefins Company (TSOC) - Sahara has 32.5% stakes; where the remaining 60.5% and 7.0% stakes are owned by
National Industrialization Company (Tasnee) and Government Organization for Social Insurance (GOSI). TSOC was established as a
holding company and has invested in the following complexes;
•
Saudi Ethylene & Polyethylene Company (SEPC) - TSOC owns 75.0% and Basell Moyen Orient Investissements SAS owns
25.0% stakes. The complex is designed to 284.8 thousand per tons of propylene and almost 1.0mn tons of ethylene. According
to the given information, around 80.0% of the designed capacity of ethylene will utilize as a feedstock to produce 0.8mn tons
of different grades of polyethylene. SEPC started its operation in June 2009.
•
Saudi Acrylic Acid Company (SAAC) - The facility is designed to produce acrylic acid and butyl acrylate. SAAC is expected to
start its experimental operations in 2Q2013; where TASCO owns 65.0% and Tasnee owns 13% stakes. It should be noted that
Sahara, indirectly, owns 43.2% stakes in SAAC. In addition, the affiliate of TASCO owns 75.0% stakes in Saudi Acrylic Monomer
Company (SAMCO), Saudi Acrylic Polymer Company (SAPCO). SAMCO is designed to utilize n-butanol form SAAC & propylene
from SEPC and supply freed stock to SAPCO and Butanol plant (a 33.3% JV between SAAC, Saudi Kayan and Sadara; where,
the commercial operation will start in 2015). On the other hand, the SAPCO is designed to produce 80 thousand tons of super
absorbent polymers for sales and expected to start its commercial production in 3Q2014.
•
Sahara & Ma’aden Petrochemicals Company (SAMAPCO) – A 50:50 JV between Sahara and Ma’aden was established to operate an
integrated chlor-alkali designed to produce 227.0 thousand tons of chlorine and 250.0 thousand tons of caustic soda. In addition,
SAMAPCO also has an ethylene dichloride plant capable to produce 300.0 thousand tons of related products.
•
NPG project – Is an upcoming limited JV project between Sahara (expected to own 48%), Chemanol (expected to own 15%) and
Mitsubishi Gas Chemicals & Sojtz Corporation (expected to contribute 37.0%). The project is designed to produce 45 thousand tons
of neopentyl glycol.
Saudi International Petrochemical Company (SIPCHEM) - The principal activities of SIPCHEM are to own, establish, operate
and manage industrial projects especially related to petrochemical and chemical. By the end of 2012; the company’s operation was
mainly based on the following investments;
2
•
International Methanol Company (IMC) - SPCHEM owns 65.0% stakes in IMC; which is designed to produce around 1.0mn tons of
methanol.
•
International Diol Company (IDC) - The production facility at IDC is designed to produce 75 thousand tons of butane diol (BDO) and
Tetrohydrofuran (THF). SIPCHEM owns 53.9% stakes.
•
International Gases Company (IGC) - The complex is designed to produce 340.0 thousand tons of carbon monoxide (CO) which is
utilized to produce acetic acid (AA) and acetic anhydride (Aan). SIPCHEM has 72.0% stakes in IGC.
•
International Acetyl Complex (IAC) – SIPCHEM owns 76.0% stakes and the complex is designed to produce 460.0 thousand AA and
Aan; where, most of AA is used to produce vinyl acetate monomer (VAM) and ethylene/butylene acetate (EA/BA). It is worthy to
mention that the company’s EA/BA facility started its commercial operation, recently.
•
International Vinyl Acetate Company (IVC) – SIPCHEM holds 76.0% stakes in IVC and is designed to produce 330.0 thousand tons of
VAM. At present, IVC is selling entire production of VAM; but the completion of Polymers Complex will lead to generate additional
in-house demand of VAM as a feedstock for IPC.
•
International Polymer Company (IPC) – 75.0% stakes of the IPC is owned by SIPCHEM and the affiliate is expected to produce 200.0
thousand tons of ethylene vinyl acetate (EVA) and low density poly ethylene (LDPE). The project is expected to start its commercial
operation in late 4Q2013.
•
Wire & Cable project – It is a proposed project to produce 20 thousand tons of medium voltage cross-linked polyethylene (XLPE)
and 5.0 thousand tons of medium voltage semi-conductor outer (insulation) and inner (conductor). It is worthy to mention that the
project will require EVA and LDPE as a feedstock.
•
Other affiliates – Beside the mentioned industrial projects, the company has fully-owned marketing company in Europe which is
responsible to carry out the company’s marketing activities in European market.
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RESEARCH DIVISION
BROKERAGE AND INVESTMENT
CENTERS DIVISION
RESEARCH
DIVISION
Senior Analyst
Abdullah Alawi
Syed Taimure Akhtar
+966 2 6618275
a.alawi@aljaziracapital.com.sa
+966 2 6618271
s.akhtar@aljaziracapital.com.sa
Senior Analyst
Analyst
Analyst
Talha Nazar
Saleh Al-Quati
Jassim Al-Jubran
+966 2 6618603
t.nazar@aljaziracapital.com.sa
+966 2 6618253
s.alquati@aljaziracapital.com.sa
+966 2 6618602
j.aljabran@aljaziracapital.com.sa
General Manager - Brokerage Division
Ala’a Al-Yousef
AGM-Head of international
Regional Manager - West and South Regions
and institutional brokerage
Abdullah Al-Misbahi
+966 1 2256000
a.yousef@aljaziracapital.com.sa
Luay Jawad Al-Motawa
+966 2 6618404
a.almisbahi@aljaziracapital.com.sa
+966 1 2256277
lalmutawa@aljaziracapital.com.sa
Sales And Investment Centers Central Region
Area Manager - Qassim & Eastern Province
Manger
Abdullah Al-Rahit
Sultan Ibrahim AL-Mutawa
+966 6 3617547
aalrahit@aljaziracapital.com.sa
+966 1 2256364
s.almutawa@aljaziracapital.com.sa
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1.
RATING
TERMINOLOGY
AGM - Head of Research
2.
3.
4.
Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target.
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