Saudi Petrochemicals - NCBC

Forecast changesPHASE II TO START COMMERCIALLY IN APRIL 2010We believe Sipchem management is targeting an April 2010 start for its Phase IIcomplex, however we have factored in our forecasts that the complex will becommercially starting from the beginning of May, out of conservatism. The complexstarted trial runs at its different units during 3Q 2009 and 4Q 2009. The Acetylcomplex is set to double Sipchem’s annual capacity to 2.2mn mt. The contributionof the Phase II complex will positively impact 2010e revenues by an estimatedSR1.5bn. Overall 2010e net income expected to grow by approximately 6.2 timesto SR870mn when compared with 2009 net income of SR141mn.UPWARD REVISION IN OIL PRICE FORECASTWe have increased our oil forecasts to an average of USD80.60 per barrel in 2010e,up 30.6% YoY. Oil prices are expected to increase to USD85 per barrel in 2011eand gradually rise to USD90 per barrel by 2012e, as the global economy recovers.In the long run, oil prices are expected to average around USD75 per barrel. Theseassumptions are higher than our previous estimates, which has pushed ourpetrochemical price estimates up thus positively impacting Sipchem’s valuation.Exhibit 65: NCBC oil price forecastIn USD per barrel2010E 2011E 2012E 2013E 2014E 2015ENew forecast 81 85 90 85 85 80Previous forecast 74 70 75 80 80 85Change (%) 9 21 20 6 6 (6)Source: NCBC Economics team estimatesSTRONG 1Q 2010 RESULTS BOOST OUTLOOKSipchem’s 1Q 2010 results benefited from higher than expected petrochemicalprices, improved operating performance post its maintenance shutdown during 3Q2009 and lower anti-dumping charges. The Chinese government reduced the antidumpingcharges on Sipchem’s Butanediol output to 4.5% from the 20.9% leviedearlier. Net income in 1Q 2010 jumped to SR81.2mn from SR29.2mn in 1Q 2009and SR56.5mn in 4Q 2009. We expect these factors to fuel earnings growth in 2010as well.UPDATE ON PHASE III DEVELOPMENTThe engineering, procurement and construction (EPC) contract for Phase III isexpected to be awarded by the end of 2010. Phase III will produce 125,000 mtpa ofpolyvinyl acetate and 200,000 mtpa of ethylene vinyl acetate. Sipchem will bedelivering 80,000mtpa of carbon monoxide production from the IGC plant to SABICunder a 20-year agreement. The project is expected to complete by end 2013.Sipchem is in talks with SABIC to take the ethane feedstock. Currently, we havenot included the impact of this expansion while valuing Sipchem due to uncertaintyon timing. Nevertheless, any positive news flow on this front will act as a strongcatalyst for the stock price, we believe.27 April 2010 SIPCHEM – COMPANY UPDATE73