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PETROCHEMICAL | 27 April 2010INITIATION OF COVERAGESahara <strong>Petrochemicals</strong>NeutralTarget Price (SR) 27.2Current price (SR) 24.5Potential upside (%) ↑ 11.4Stock details52-week range H/L (SR) 26/13Market cap ($mn) 1,910Shares outstanding (mn) 293Listed on exchanges TADAWULPrice perf (%) 1M 3M 12MAbsolute 9.9 23.2 91.8Rel. to market 8.5 13.0 65.1Avg daily T/o (mn) SR US$3M 41.2 11.012M 32.0 8.5Reuters code2260.SEBloomberg code SPCO ABWebsite www.saharapcc.comValuation multiples09 10E 11EP/E (x) 70.1 11.9 9.9P/B (x) 1.8 2.0 1.7EV/EBITDA (x) n/a 15.1 8.1Div yield (%) 0.0 0.0 0.0Source: <strong>NCBC</strong> Research estimatesShare price performance30800025207000156000105500004000Mar-09 Sep-09 Mar-10Sahara TASI (RHS)Source: BloombergLooking forward to Al Waha productionSahara <strong>Petrochemicals</strong> Co. (Sahara) has one operational plant, onecoming on-stream in 2Q 2010 and a further three set to commercializeoperations in 2013. Despite the diversified product mix, dependence onlimited production restricts its prospects in the near term. We initiatecoverage on Sahara with a Neutral rating and target price of SR27.2.• SEPC is the only income generator for now…: SEPC (Sahara’s 24.41%owned associate) went commercially active in July 2009 and addedSR148.2mn to Sahara’s 2009 bottom line by way of income from associates.We expect Sahara’s 2010 results to benefit from SEPC’s full year contributionas well as an improving demand outlook and stronger petrochemical prices.• …Until the Al Waha plant begins commercial operations in 2Q 2010:This plant will not only add 450,000 mt of polypropylene annually to Sahara’sproduction, but will also bring in revenue to the company for the first time. AlWaha will remain the only source of revenue for Sahara until the other plantscommercialize operations in 2013. Management has assured us of the startdate and we are confident in their ability to meet it.• SAMC, ACVC and SAP plants to start in three years: These plants, whichare in the pipeline, will source feedstock from Sahara’s existing facilities – AlWaha and SEPC. However, we do not expect these three plants to becommercially operational before 1Q13, when they will add 755,000 mtpa incapacity and SR269.4mn in estimated net income. Hence, on-timecommencement of Al Waha is crucial for Sahara’s valuation.• Diverse product mix a long-term play: Once all of Sahara’s facilities are upand running, the company will have amongst the most diverse productportfolios in the sector with a range of ethylene derivatives, superabsorbentpolymers, and acrylates. However, Sahara will be benefiting from this diversemix only from 2013 onwards when the all the plants are operational.• Valuation: Sahara trades at a 2009 P/BV multiple of 1.8x (sector average:2.9x and TASI: 2.2x). Our DCF analysis results in a valuation of SR27.2/share.However, with only two operational product lines, we believe Sahara may belimited in its ability to benefit from the improving demand and pricing outlookin the near term. We initiate coverage on Sahara with a Neutral rating and atarget price of SR27.2, representing 11.4% upside.Tariq Al-Alaiwatt.alalaiwat@ncbc.comTel. +966 2690 7627Please refer to the last page forimportant disclaimerFinancials2009 2010E 2011E 2012E 2013ERevenues SR mn 0 1,242 2,358 2,440 3,757EBITDA SR mn (39) 474 887 907 1,343EBITDA margin % n/a 38.2 37.6 37.2 35.7Net income SR mn 76 601 723 706 975Net margin % n/a 48.4 30.7 28.9 26.0EPS SR 0.35 2.05 2.47 2.41 3.33Assets SR mn 5,956 7,396 8,451 9,297 10,707Equity SR mn 2,938 3,539 4,263 4,969 5,944Source: Company, <strong>NCBC</strong> Research estimates