Global Research Sector-Petrochemical May 2011
GCC Petrochemical
GCC Petrochemical Sector 1Q11
Faisal Hasan, CFA Head of Research fhasan@global.com.kw Tel: (965) 2295-1270
OPEC average prices recorded at USD100.8/barrel in 1Q11; QoQ growth of 20.4% Impressive 1Q11 performance; prices & volumes remained key growth drivers Prices continue to remain key QoQ growth driver in 2Q11 ‘Neutral’ stance on the sector
MENA political unrest lead benchmark crude oil to remain on high level The persisting unrest in the MENA region, during 1Q11, remained a key factor that has led the average prices of all benchmark crude oil above USD90/barrel. Moreoever, during the quarter we have witnessed notable change in WTI/Brent price spread; where the average prices of WTI and UK Brent crude oil were recorded at USD94/barrel and USD103.4/barrel, respectively. Hence, the average prices of basic chemical remained on higher levels with QoQ gain of 30.5%, 22%, 20.3% 7.4% and 1% in ethylene, propylene, benzene, ammonia and urea, respectively, during 1Q11.
Quarterly performance The regional sector witnessed outstanding financial performance in 1Q11, where the profitability (based on our regional petrochemical coverage) was recorded at USD3.1bn. This indicates the regional profitability registered impressive YoY growth of 49.9% and witnessed 27.8% growth on quarterly basis, during the quarter under review. On the other hand, based on our regional petrochemical coverage, the regional sales revenue in 1Q11 witnessed YoY and QoQ growth of 33.5% and 7.6%, respectively. It is noteworthy that the improvement in average prices and volumetric sales remained crucial factors in 1Q11; where higher prices were remained the key driver for QoQ growth. Moreoever, we cannot ignore the positive impact of improvement in operating performance, which has led the regional operating margin to reach at 32.1% in 1Q11 as compared to 29.3% recorded in 4Q10.
Regional political unrest will continue to support prices Global Research believes the additional production from KSA could release some threat of potential supply glitch in international market due to Libyan crisis. However, based on our understanding, the ongoing geopolitical unrest will remain key factor, which will keep the average prices of benchmark crude oil on higher levels in 2Q11; where the average prices of all benchmark crude oil are expected to remain above USD100/bbl. Furthermore, the average prices of OPEC crude oil is expected to remain in the average range of USD103.5/bbl to USD108.5/bbl in 2Q11.
Outlook for 2Q11 Based on our regional coverage, the sector’s net profitability is expected to show QoQ growth of 7.2% in 2Q11, which will translate into YoY expected growth of 55.5%. We believe the expected higher average prices will continue to contribute significant role in expected quarterly growth. Consequently, the primary impact of estimated QoQ gain prices (in 2Q11) will reflect directly on the sector’s sales revenue, which is expected show QoQ and YoY growth of 8.7% and 29.1%, respectively. Moreoever, we are expecting minute QoQ improvement in the regional capacity utilization, on the back of slow improvement in demand and ongoing regional uncertainty. Consequently, the regional gross, operating and net profitability margins are expected to record at 38%, 31% and 22%, respectively, in 2Q11.
Recommendation - Positive We reiterate our neutral stance on the sector with SIPCHEM and IQ as our top pick for the sector in 2Q11. Global Research Petrochemical Coverage
Syed Taimure Akhtar Senior Financial Analyst sakhtar@globalinv.com.sa Tel: (966) 1 299-4105 Global Investment HouseSaudia www.globalinv.com.sa
Ticker
Country
Mkt Cap
Price*
(USDmn)
In (LC)
Stock Performance
Div. Yield
1m
3m
12m
2011e
P/E 2011e
P/BV 2012e
2011e
Earnings Grow th 2012e
2011e
2012e
SABIC
KSA
87,400.0
109.3
1.9%
4.5%
7.1%
2.8%
10.6
9.6
2.4
2.1
44.3%
9.6%
SIPCHEM
KSA
2,072.9
21.2
-8.6%
-0.1%
-6.0%
4.1%
13.4
9.9
1.5
1.4
53.1%
35.5%
SAFCO
KSA
11,966.7
179.5
-0.8%
-6.0%
30.5%
5.5%
12.7
11.7
5.5
4.8
9.6%
7.7%
YANSAB
KSA
7,470.0
49.8
-3.8%
6.9%
7.1%
5.0%
9.9
9.4
0.0
0.0
68.6%
5.4%
IQ
Qatar
22,030.0
147.0
2.4%
-1.6%
35.0%
6.8%
8.8
7.0
2.8
2.3
63.9%
25.8%
Source: Tadawul, Zawya & Global Resercah *Market prices for KSA as of 11th May 2011, while for Qatar market prices are as of 12th May 2011
Global Research – Saudi Arabia
GCC Petrochemical Quarterly Report
Quarterly Price Trend The average prices of WTI, Brent and OPEC crude oil remained on higher levels and recorded at USD94/barrel, USD103.3/barrel and USD100.8/barrel, respectively, in 1Q11.The upward movement in benchmark crude oil prices, during the quarter under review, was mainly associated with the wave of severe political unrest hit the region including surgical strikes on Libya. The peak prices of benchmark crude oil i.e. WTI, Brent and OPEC were recorded at USD106.7/barrel, USD118.4/barrel and USD112/barrel, respectively, in 1Q11. interestingly, the average prices of WTI crude oil registered minimal QoQ gain of 10.4% as compared to the gain of 18.5% and 20.4% in the average prices of Brent and OPEC crude oil, respectively. Consequently, we have witnessed notable change in WTI/Brent price spread, during the quarter, which was recorded at -9.1% in 1Q11 as compared to -2.8% recorded in preceding quarter i.e. 4Q10.
Feedstock, Basic Chemical & Fertilizer Products Prices - Quarterly WTI & Brent Crude Oil Prices OPEC Crude Oil Prices 140.0
4.0% 1.1%
120.0
2.2% -9.1%
-9.1%
25.0%
20.4% 15.7%
3.0%
13.5%
100.0
0.0%
-1.2% -1.9%
80.0
1.6%
-2.8%
80.0
1.6%
10.0%
-3.7%
5.0%
-2.0% 60.0
60.0
-4.0%
40.0
-6.0%
20.0
-8.0%
-
-10.0%
0.0% -5.0%
40.0
WTI Crude Oil (USD per barrel)
UK Brent Crude Oil (USD per barrel)
WTI/Brent - Price Spread - RHS
OPEC Crude Oil (USD per barrel) - LHS
Source: Bloomberg & Global Research
US Natural Gas Prices
800.0
25.0%
6.0
50.0% 41.9%
2.6% 18.4%
700.0
12.1% 9.6%
QoQ Growth - RHS
Source: OPEC & Global Research
Naphtha Prices
600.0
2Q11e
-25.0%
2Q11e
1Q11
1Q11
4Q10
4Q10
3Q10
3Q10
2Q10
2Q10
-20.0% -
1Q10
1Q10
-15.0%
20.0
4Q09
4Q09
-10.0%
3Q09
3Q09
20.0% 15.0%
9.6%
-0.6%
100.0
2.0%
120.0
14.1%
20.0%
20.9% 40.0%
5.5 2.3%
15.0% 4.3%
-0.6%
30.0%
15.6%
5.0
20.0%
-3.3% 10.0%
-20.9%
4.5
500.0
10.0%
-3.9%
5.0%
0.0% 4.0
400.0 0.0%
Naphtha Prices (USD per ton) - LHS
2Q11e
1Q11
3Q10
4Q10
QoQ Growth - RHS
Propylene Prices
31.8%
30.5%
2.1%
1,400.0 8.7%
12.9%
-1.2%
35.0%
2,000.0
30.0%
1,800.0
25.0%
-5.5%
20.0%
2.8%
1,000.0
2Q10
3Q09
Gas Prices (USD per mmbtu) - LHS
Source: Bloomberg & Global Research
Ethylene Prices
1,200.0
-30.0%
QoQ Growth - RHS
Source: Bloomberg & Global Research 1,600.0
-20.0%
3.0
2Q11e
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
-10.0%
3Q09
200.0
-11.6%
1Q10
-5.0%
-10.0% 3.5
4Q09
300.0
50.0%
45.7% 10.4% 22.0%
2.1%
1,600.0
1.8%
-18.8% 1,400.0
40.0% 30.0%
-10.4%
4.4% 20.0%
1,200.0 15.0%
800.0
1,000.0
10.0%
10.0%
800.0
Ethylene Prices (USD per ton) - LHS
Source: Bloomberg & Global Research
May 2011
QoQ Growth - RHS
-20.0%
200.0
Propylene Prices (USD per ton) - LHS
2Q11e
1Q11
-30.0%
4Q10
-
3Q10
2Q11e
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
-10.0%
3Q09
-
400.0
2Q10
-5.0%
-10.0%
1Q10
0.0%
200.0
0.0%
600.0
4Q09
5.0% 400.0
3Q09
600.0
QoQ Growth - RHS
Source: Bloomberg & Global Research
2
Global Research - Saudi Arabia
GCC Petrochemical Quarterly Report
Methanol Prices
MTBE Prices
400.0
40.0% -2.7%
350.0
1,200.0
20.0% 16.9%
30.8%
1.4%
17.4%
30.0%
1,000.0
15.0% 10.2%
11.0%
300.0
8.7%
7.8% 10.2%
20.0% 800.0
-21.5%
250.0
2.4%
-2.9%
-0.4%
-5.4%
1.2%
10.0%
10.0% 200.0
600.0
5.0%
400.0
0.0%
200.0
-5.0%
0.0%
150.0 -10.0%
Methanol Prices (USD per ton) - LHS
MTBE Prices (USD per ton) - LHS
2Q11e
1Q11
4Q10
3Q10
2Q10
3Q09
1Q10
-10.0%
QoQ Growth - RHS
Source: Bloomberg & Global Research
QoQ Growth - RHS
Source: Bloomberg & Global Research
Benzene Prices
Butadiene Prices
1,400.0
25.0% 20.3%
1,200.0
14.9% -7.1%
8.1%
2.3%
12.0%
10.8%
1,000.0
-
2Q11e
1Q11
4Q10
3Q10
2Q10
-30.0%
1Q10
-
4Q09
-20.0%
3Q09
50.0
4Q09
100.0
20.0%
3,000.0
100.0%
91.1%
2,500.0
22.0% 10.0%
15.0%
800.0
-18.8%
10.0%
40.0%
1.3%
1,500.0 600.0
80.0% 60.0%
13.8%
30.8%
2,000.0
-2.5%
1.8%
5.0%
20.0% 1,000.0
Benzene Prices (USD per ton) - LHS
Butadiene Prices (USD per ton) - LHS
2Q11e
1Q11
3Q09
4Q10
-40.0%
QoQ Growth - RHS
Source: Bloomberg & Global Research
Ammonia Prices
Urea Prices
500.0
35.0% 24.3%
-
QoQ Growth - RHS
Source: Bloomberg & Global Research
450.0
-20.0%
2Q11e
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
-10.0%
3Q09
-
500.0
3Q10
-5.0%
2Q10
200.0
0.0%
1Q10
0.0%
4Q09
400.0
27.0%
7.4%
0.8%
12.1%
25.6%
350.0
14.4%
-13.0%
300.0
20.0%
300.0
15.0%
250.0
1.0%
0.5%
25.4%
25.0%
400.0 350.0
30.0%
400.0
30.0%
7.8% 0.5%
4.2%
20.0% -19.5% 10.0%
10.0% 250.0
1.6%
5.0%
200.0
0.0%
150.0
-5.0%
40.0%
200.0
0.0% 150.0 -10.0%
100.0
Ammonia Prices (USD per ton) - LHS
Source: Bloomberg & Global Research
May 2011
QoQ Growth - RHS
Urea Prices (USD per ton) - LHS
2Q11e
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
-30.0%
3Q09
-
2Q11e
-20.0%
1Q11
-
4Q10
-20.0%
3Q10
50.0
2Q10
-15.0%
1Q10
50.0
4Q09
-10.0%
3Q09
100.0
QoQ Growth - RHS
Source: Bloomberg & Global Research
3
Global Research - Saudi Arabia
GCC Petrochemical Quarterly Report
DAP Prices
Phosphoric Acid Prices
600.0
45.0%
0.7%
12.7%
50.0%
1,000.0
40.0% 32.1%
9.7%
900.0 12.9%
500.0
40.0%
-0.4%
30.0%
0.4%
15.7%
800.0
1.3%
700.0 400.0
20.0%
30.0%
600.0
7.3%
-0.8%
300.0
20.0%
500.0
1.3%
-14.1%
10.0%
400.0 200.0
10.0%
100.0
0.0%
0.0%
300.0 200.0
-10.0%
100.0
QoQ Growth - RHS
Phosphoric Acid Prices (USD per ton) - LHS
Source: Bloomberg & Global Research
2Q11e
1Q11
4Q10
3Q10
2Q10
4Q09
3Q09
2Q11e
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
DAP Prices (USD per ton) - LHS
-20.0%
1Q10
-
-10.0%
3Q09
-
QoQ Growth - RHS
Source: Bloomberg & Global Research
Metal Prices - Quarterly Gold Prices 1,600.0
Silver Prices 16.0%
14.0% 11.6%
1,400.0 9.8%
1,200.0
1.2%
35.0
45.0%
39.6%
20.1%
3.0% 14.0%
1.2%
2.3% 40.0%
30.0
35.0%
12.0%
-0.3%
30.0%
25.0
4.3%
10.0%
1,000.0 8.0%
20.0
800.0
6.0%
11.3%
13.6%
25.0%
2.0%
20.0%
-2.9%
9.0%
15.0%
15.0
600.0
10.0%
4.0% 10.0
400.0
Gold Prices (USD per Oz) - LHS
Silver Prices (USD per Oz) - LHS
2Q11e
1Q11
4Q10
3Q09
3Q10
-10.0%
2Q10
-
QoQ Growth - RHS
Source: Bloomberg & Global Research
QoQ Growth - RHS
Source: Bloomberg & Global Research
Aluminium Prices
Copper Prices 30.0%
26.3% 6.7%
2,500.0
1.5%
4.6% 9.3%
-4.0%
12,000.0
35.0% 29.1%
25.0%
10,000.0
12.1%
2,000.0
-5.0%
2Q11e
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
-2.0%
3Q09
-
0.0%
5.0
1Q10
0.0%
4Q09
200.0
3,000.0
5.0%
2.0%
18.9%
20.0%
2.0%
15.0%
8,000.0 12.9%
11.6%
1.4%
25.0% 20.0%
4.8%
4.6%
30.0%
-4.0% 15.0%
1,500.0
10.0%
6,000.0
10.0% 5.0% 1,000.0
4,000.0
5.0%
0.0%
Aluminium Prices (USD per ton) - LHS
Source: Bloomberg & Global Research
May 2011
QoQ Growth - RHS
Copper Prices (USD per ton) - LHS
2Q11e
1Q11
4Q10
3Q10
-10.0%
2Q10
-
1Q10
2Q11e
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
-10.0%
3Q09
-
-5.0%
4Q09
-5.0%
0.0% 2,000.0
3Q09
500.0
QoQ Growth - RHS
Source: Bloomberg & Global Research
4
Global Research - Saudi Arabia
GCC Petrochemical Quarterly Report
Zinc Prices
Lead Prices
3,000.0
30.0% 23.7%
3,000.0
36.5%
40.0%
25.9%
9.0%
25.0% 2,500.0
14.9%
-4.9%
3.6%
1.0%
2,500.0
0.6%
18.5%
12.7%
30.0%
20.0%
-10.5%
-10.5% 2.2% 2,000.0
15.0%
-8.1%
2,000.0
5.1% 20.0%
10.0% 1,500.0
1,500.0
10.0%
1,000.0
0.0%
5.0% 1,000.0
0.0% -5.0%
500.0
500.0
-10.0%
-10.0%
Zinc Prices (USD per ton) - LHS
Source: Bloomberg & Global Research
QoQ Growth - RHS
Lead Prices (USD per ton) - LHS
2Q11e
1Q11
4Q10
3Q10
2Q10
1Q10
-20.0% 4Q09
3Q09
2Q11e
1Q11
4Q10
3Q10
2Q10
1Q10
4Q09
-15.0%
3Q09
-
QoQ Growth - RHS
Source: Bloomberg & Global Research
Global Research believes the additional production from KSA could release some threat of potential supply glitch in international market due to Libyan crisis. However, based on our understanding, the ongoing geopolitical unrest will remain key factor, which will keep the average prices of benchmark crude oil on higher levels in 2Q11; where the average prices of all benchmark crude oil are expected to remain above USD100/bbl. Furthermore, in 2Q11, we expect the average prices of OPEC crude oil is expected to remain in the average range of USD103.5/bbl to USD108.5/bbl, while the average prices of WTI and UK Brent will remain in the average range of USD105/bbl to USD115/bbl and USD115/bbl to USD125/bbl, respectively. Consequently, the average prices of petrochemical, fertilizer and metals are expected to remain on high levels in 2Q12.
May 2011
5
Global Research - Saudi Arabia
GCC Petrochemical Quarterly Report
1Q11 Financial Results (Global Petrochem Universe) Saudi Basic Industries Corporation (SABIC) net profitability was recorded at SAR7.7bn (EPS: SAR2.6) in 1Q11 and registered YoY growth of 41.6% in bottom line. On the other hand, the company’s sales revenue registered YoY growth of 31.5% and recorded at SAR44.8bn in 1Q11, which was mainly due to higher prices of related products. However, we cannot rule out the impact of YoY growth in the company’s production volumes, which was mainly based on the (i) improvement in demand on global front and (ii) positive outcome of the company’s target market expansion strategy. In addition, the company’s gross and net profitability margins were recorded at 34.4% and 17.1% in 1Q11. Quarterly Financial Indicators
Sales Revenue 50,000
Gross Profit 9.2%
17.8%
45,000 13.9%
40,000
-2.5%
20.0%
18,000.0
37.0%
8.5% 15.0%
12.6%
36.0%
14,000.0
8.3%
35,000
34.4%
35.8%
16,000.0
30.5% 12,000.0
30,000
10.0%
31.6%
35.0%
30.3%
32.4% 10,000.0
25,000
34.0%
30.6%
8,000.0
20,000
33.0%
5.0% 6,000.0
15,000
32.0%
10,000
0.0%
4,000.0 31.0%
2,000.0
5,000 -
-
-5.0% 3Q09
4Q09
1Q10
2Q10
3Q10
Sales Reven ue (SAR mn )-LHS
4Q10
4Q09
1Q10
2Q10
3Q10
Gross Profit (SAR mn)-LHS
Qo Q Growth-RHS
Source: Company financial reports
4Q10
1Q11
Gorss Margin-RHS
Source: Company financial reports
Operating Profit 14,000.0
30.0% 3Q09
1Q11
Net Profit 29.0%
28.5%
12,000.0
28.0%
18.0%
23.5%
17.1%
8,000.0
17.0% 7,000.0
24.5%
10,000.0
9,000.0
27.9%
15.9%
27.0%
23.7%
14.0%
6,000.0 12.9%
25.3% 8,000.0
26.0%
5,000.0
6,000.0
25.0%
4,000.0
4,000.0
24.0%
22.7%
16.0%
14.1%
14.6% 15.0%
13.0%
3,000.0
14.0%
2,000.0 2,000.0
23.0%
-
22.0% 3Q09
4Q09
1Q10
2Q10
Operating Profit (SAR mn)-LHS
3Q10
4Q10
12.0% 3Q09
4Q09
1Q10
2Q10
Net Profit (SAR mn)-LHS
Operating Margin-RHS
3Q10
4Q10
1Q11
Operating Margin-RHS
Source: Company financial reports
Return On Assets
Return On Equity
340,000
2.3%
330,000
2.4% 2.2%
140,000 120,000 3.5%
1.8%
320,000
1.7% 1.7%
4.2%
4.8%
4.4%
4.8%
6.0%
4.6%
6.5% 6.0%
2.0%
100,000
5.5%
1.8%
80,000
5.0%
60,000
4.5%
40,000
4.0%
20,000
3.5%
1.8% 1.5%
300,000 290,000
-
1Q11
Source: Company financial reports
310,000
13.0% 1,000.0
1.6%
1.3%
1.4%
280,000
1.2%
270,000
260,000
1.0% 3Q09
4Q09
1Q10
2Q10
Total Assets (SAR mn)-LHS
Source: Company financial reports
3Q10
4Q10
3.0% 3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
1Q11
Return on Assets-RHS
Total Shareholders' Equity (SAR mn)-LHS
Return on Shareholders' Equity-RHS
Source: Company financial reports
The company’s bottom line, during the quarter under review, registered QoQ growth of 33.6% over the net profitability of SAR5.7bn (EPS: SAR1.9) recorded in 4Q10. The outstanding QoQ growth in the company’s bottom line was mainly associated with QoQ improvement in the average higher prices of related products, during 1Q11. However, we cannot ignore the positive impact of improvement in operational performance; where operating margin was inched up to 27.9% in 1Q11 from 24.5% recorded in 4Q10.
May 2011
6
Global Research - Saudi Arabia
GCC Petrochemical Quarterly Report
Saudi International Petrochemical Company (SIPCHEM) net profitability registered YoY growth of 48.9% over the after tax profit of SAR81.2mn (Diluted EPS: SAR0.22) recorded in 1Q10. The growth in the company’s bottom line growth was mainly associated with the (i) commencement of Vinyl Acetate Complex, which nurtured YoY production growth, (ii) increase in volumetric sales and (iii) higher prices of related products. On the other hand, the company’s profitability margins indicated significant decline during 1Q11; where gross and net profitability margins were recorded at 38.6% and 17.4%. The lower profitability margins were mainly due to higher (i) operating cost, (ii) overheads and (iii) financial cost, during the quarter under review. Quarterly Financial Indicators
Sales Revenue
Gross Profit
900
70.0%
350.0
55.0% 50.9%
57.4% 800
60.0%
51.5%
-13.4%
700
39.1%
48.7%
300.0
50.0%
46.6%
38.6%
50.0%
250.0
36.8%
600 500
45.0%
40.0%
21.7%
400
30.0%
200.0
40.0%
20.0%
150.0
35.0%
2.5% 300
39.6%
10.0%
100.0
12.0% 200
0.0%
100
-10.0%
-
-20.0% 3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
Sales Reven ue (SAR mn )-LHS
50.0
25.0%
-
20.0%
1Q11
3Q09
QoQ Growth-RHS
4Q09
1Q10
2Q10
3Q10
Gross Profit (SAR mn)-LHS
Source: Company financial reports
4Q10
1Q11
Gorss Margin-RHS
Source: Company financial reports
Operating Profit
Net Profit
300.0
50.0%
35.2%
46.3% 44.0%
34.7%
41.2%
250.0
30.0% 24.9%
45.0% 40.0%
34.6%
200.0
140.0
30.0%
27.8%
15.6% 26.6%
120.0
17.4%
26.0%
23.6%
100.0
24.0%
16.5%
35.0%
80.0 150.0
22.0%
19.0%
30.0%
20.0%
60.0 25.0%
18.0%
100.0 20.0% 50.0
40.0 16.0%
16.0% 15.0%
-
10.0% 3Q09
4Q09
1Q10
2Q10
Operating Profit (SAR mn)-LHS
3Q10
4Q10
12.0% 4Q09
1Q10
2Q10
Net Profit (SAR mn)-LHS
3Q10
4Q10
1Q11
Operating Margin-RHS
Source: Company financial reports
Return On Equity 3.5%
0.5%
-
Operating Margin-RHS
3.1%
12,000
14.0%
3Q09
Return On Assets 14,000
20.0
1Q11
Source: Company financial reports
28.0%
0.7%
0.7%
0.7%
1.0%
5,100
2.4%
1.0%
2.5% 3.0%
2.6%
5,000 1.1%
10,000
2.5%
4,900
8,000
2.0%
4,800
6,000
1.5%
4,700
4,000
1.0%
2,000
0.5%
2.8%
2.4%
1.1%
2.2% 1.8%
2.0%
1.9% 1.7%
1.8% 1.6%
-
0.0% 3Q09
4Q09
1Q10
2Q10
Total Assets (SAR mn)-LHS
Source: Company financial reports
3Q10
4Q10
1Q11
Return on Assets-RHS
4,600 1.4% 4,500
1.2%
4,400
1.0% 3Q09
4Q09
1Q10
2Q10
Total Shareholders' Equity (SAR mn)-LHS
3Q10
4Q10
1Q11
Return on Shareholders' Equity-RHS
Source: Company financial reports
The company’s profitability remained 43.3% lower than our estimated profit of SAR173.2mn for the quarter under review. Moreoever, the company has registered QoQ decline of 3.4% from the after tax profit of SAR125.1mn recorded in 4Q10, despite the average prices of related products remained on higher level. The upset in 1Q11 was mainly associated with the maintenance shutdown of two complexes i.e. IAC and IDL in Jan 11. In addition, the company’s gross and net profitability margins were recorded at 38.6% and 17.4%, respectively, during 1Q11. Global Research believes, at present, the company’s main focus is to maximize the utilization of in-house production as feedstock to produce new value-added products. Based on the given expansion plan, we expect the company’s production capacity will increase at a CAGR of 5.7% during 2010-14.
May 2011
7
Global Research - Saudi Arabia
GCC Petrochemical Quarterly Report
Yanbu National Petrochemical Company (YANSAB) recorded after tax profit of SAR717.9mn (EPS: SAR1.3) as compared to the net profitability of SAR259.4mn (EPS: SAR0.5) in 1Q10. The bottom line growth was mainly associated with (i) YoY increase in the prices of related products and (ii) full impact of newly completed complex. On the other hand, the direct impact of these factors (mentioned earlier) was reflected on the company’s sales revenue, which registered mammoth YoY growth of 201.7% in 1Q11. Quarterly Financial Indicators
Sales Revenue
Gross Profit
2,500
137.9% 9.8%
160.0%
1,000.0
140.0%
900.0
18.0% 2,000
120.0% -2.2%
100.0%
60.0% 42.9% 47.3%
800.0
50.0% 38.6%
37.5% 40.0%
700.0
31.3%
600.0
1,500
30.0%
80.0% 500.0
60.0% 1,000 40.0% 500
-
300.0
20.0%
200.0
0.0%
100.0
4Q09
1Q10
2Q10
3Q10
4Q10
Sales Reven ue (SAR mn )-LHS
10.0% 0.0%
-
-20.0% 3Q09
20.0%
400.0
-10.0% 3Q09
1Q11
4Q09
1Q10
2Q10
3Q10
Gross Profit (SAR mn)-LHS
QoQ Growth-RHS
4Q10
Gorss Margin-RHS
Source: Company financial reports
Source: Company financial reports
Operating Profit
Net Profit
900.0
40.3%
50.0%
800.0
50.0% 34.6%
45.1%
800.0
1Q11
700.0 36.4%
37.7%
40.0%
35.5%
700.0
600.0
600.0
29.2%
40.0% 29.3%
30.7%
500.0
30.0%
30.0% 22.2%
500.0
400.0 400.0
20.0%
20.0%
300.0 300.0
200.0
10.0%
200.0
10.0%
100.0
100.0
0.0%
0.0%
-
(100.0)
3Q09
4Q09
1Q10
2Q10
3Q10
Operating Profit (SAR mn)-LHS
4Q10
1Q11
3Q09
1Q10
2Q10
3Q10
4Q10
1Q11 -10.0%
Net Profit (SAR mn)-LHS
Operating Margin-RHS
Source: Company financial reports
Operating Margin-RHS
Source: Company financial reports
Return On Assets
Return On Equity
30,000 3.0% 2.4%
25,000
4Q09
(100.0)
-10.0%
1.2%
2.3%
1.6%
20,000
3.5%
9,000
3.0%
8,000
2.5%
7,000
2.0%
6,000
1.5%
5,000
1.0%
4,000
0.5%
3,000
0.0%
2,000
-0.5%
1,000
11.0% 8.9% 7.6%
9.0%
7.8% 4.4%
7.4% 7.0% 5.0%
15,000
10,000
5,000
-
-1.0% 3Q09
4Q09
1Q10
2Q10
Total Assets (SAR mn)-LHS
Source: Company financial reports
3Q10
4Q10
1Q11
Return on Assets-RHS
3.0% 1.0%
-
-1.0% 3Q09
4Q09
1Q10
2Q10
Total Shareholders' Equity (SAR mn)-LHS
3Q10
4Q10
1Q11
Return on Shareholders' Equity-RHS
Source: Company financial reports
On quarterly basis, the company’s profitability exceeded our forecast of SAR637.6mn for the quarter under review. Moreoever, the company’s registered reasonable QoQ growth of 29.4% in net profit, which was mainly associated with higher average prices of related products. In addition, we believe QoQ improvement in prices remained key factor, which has jacked up the company’s 1Q11 gross and net profit margin to 42.9% and 34.6%, respectively.
May 2011
8
Global Research - Saudi Arabia
GCC Petrochemical Quarterly Report
Saudi Arabian Fertilizer Company (SAFCO) registered after tax profit of SAR832.6mn (EPS: SAR3.33) in 1Q11 as compared to SAR1bn (EPS: SAR4.1) recorded in 4Q10. The disappointed 1Q11 financial performance was mainly associated with lower than expected decline in sales volume, which has also overshadowed QoQ improvement in gross profitability margin, during the quarter under review. In addition, we cannot ruled out the impact of limited QoQ gain in ammonia and urea prices in 1Q11. Quarterly Financial Indicators
Sales Revenue 1,400
Gross Profit 54.3%
46.2%
1,200
1,000.0
50.0%
900.0
40.0%
800.0
1,000
21.6%
30.0%
-15.2%
4.2%
20.0%
-21.6%
600
74.7% 75.0%
600.0
70.0%
61.7% 63.1%
10.0%
400.0 0.0%
400 -10.0% 200
-20.0%
-
-30.0% 3Q09
80.0%
71.1%
700.0
500.0
4Q09
1Q10
2Q10
3Q10
Sales Reven ue (SAR mn )-LHS
4Q10
65.0%
56.1%
300.0 200.0
60.0%
100.0 -
1Q11
55.0% 3Q09
Qo Q Growth-RHS
4Q09
1Q10
2Q10
3Q10
Gross Profit (SAR mn)-LHS
Source: Company financial reports
4Q10
1Q11
Gorss Margin-RHS
Source: Company financial reports
Operating Profit
Net Profit
1,000.0
80.0%
1,200.0
130.0% 123.8%
69.9%
76.1%
900.0
78.7% 73.0%
800.0
75.0%
120.0%
1,000.0
71.6%
80.2%
700.0 600.0 500.0
77.9% 74.4%
-20.3%
800
60.0%
70.0%
800.0
65.0%
600.0
60.0%
400.0
60.2%
100.0%
67.8%
60.5%
65.0%
400.0
90.0%
67.1%
54.7%
300.0
80.0%
200.0
55.0%
200.0
70.0%
100.0 -
50.0% 3Q09
4Q09
1Q10
2Q10
Operating Profit (SAR mn)-LHS
3Q10
4Q10
60.0% 3Q09
Operating Margin-RHS
4Q09
1Q10
2Q10
Net Profit (SAR mn)-LHS
3Q10
4Q10
1Q11
Operating Margin-RHS
Source: Company financial reports
Return On Assets
Return On Equity
10,000
9.1%
4.3% 9.4%
14.5%
9,000
18.0%
16.8%
10.4%
8,000
12.2%
10.9%
5.8%
8,000
-
1Q11
Source: Company financial reports
9,000
110.0%
80.8%
12.5%
7,000
8.3%
7.0%
10.0%
11.6%
7,000
10.5%
6,000 5,000
8.5%
16.0%
14.4%
5.3%
14.0%
6,000 5,000
12.0%
4,000
10.0%
4,000 6.5%
3,000
3,000 8.0% 2,000
2,000
4.5%
1,000 -
2.5% 3Q09
4Q09
1Q10
2Q10
Total Assets (SAR mn)-LHS
Source: Company financial reports
3Q10
4Q10
1Q11
Return on Assets-RHS
6.0%
1,000 -
4.0% 3Q09
4Q09
1Q10
2Q10
Total Shareholders' Equity (SAR mn)-LHS
3Q10
4Q10
1Q11
Return on Shareholders' Equity-RHS
Source: Company financial reports
On the other hand, despite of lower than expected quarterly performance, the company’s profitability registered YoY growth of 19.2% over the after tax profit of SAR698.3mn (EPS: SAR2.8) recorded in 1Q10. The company’s bottom line growth, during 1Q11, was mainly associated with YoY improvement in the average prices of ammonia and urea, respectively.
May 2011
9
Global Research - Saudi Arabia
GCC Petrochemical Quarterly Report
Industries Qatar (IQ) witnessed satisfactory financial performance, during 1Q11, where the profitability remained in-line with our forecast of QAR2.15bn (a slight variance of 2.5%). On the other hand, the company has indicated an impressive YoY top line growth of 50.8% over the sales revenue of QAR2.6bn recorded in 1Q10. We believe YoY increase in sales revenue was mainly associated with the (i) improvement in the average prices of related products, (ii) additional production from new complexes and (iii) better demand in Asian markets, which enabled the company to improve its capacity utilization. Quarterly Financial Indicators
Sales Revenue
Gross Profit
4,500
27.0%
30.0%
57.0% 55.2%
25.0%
55.0%
2,000.0
3,500 3,000
2,500.0
3.9%
4,000
46.7%
20.0% 10.8%
7.2%
5.1%
8.7%
15.0%
2,500
1,500.0
49.3%
50.8%
49.1%
53.0%
48.2%
47.2%
10.0%
51.0%
2,000 5.0%
1,500
1,000.0 49.0%
0.0%
1,000
-4.1%
500.0
47.0%
-5.0%
500 -
-10.0% 3Q09
4Q09
1Q10
2Q10
3Q10
Sales Reven ue (QAR mn )-LHS
4Q10
QoQ Growth-RHS
4Q09
1Q10
2Q10
3Q10
Gross Profit (QAR mn)-LHS
4Q10
1Q11
Gorss Margin-RHS
Source: Company financial reports
Operating Profit
Net Profit
2,500.0
53.0% 50.4%
2,000.0
44.0%
55.0% 52.5%
51.0% 46.9%
46.4%
49.0%
39.5%
45.8%
1,500.0
43.0%
47.0%
45.0%
40.9%
41.2%
45.0%
43.0%
1,000.0
1,000.0
43.0%
41.0% 39.0%
500.0
41.0% 500.0
39.0%
37.0% -
35.0% 3Q09
4Q09
1Q10
2Q10
Operating Profit (QAR mn)-LHS
3Q10
4Q10
35.0% 3Q09
Operating Margin-RHS
4Q09
1Q10
2Q10
Net Profit (QAR mn)-LHS
3Q10
4Q10
1Q11
Operating Margin-RHS
Source: Company financial reports
Return On Assets
Return On Equity
35,000 4.8% 4.1% 4.6%
37.0% -
1Q11
Source: Company financial reports
30,000
53.0%
50.8% 2,000.0
47.0%
39.8% 1,500.0
2,500.0
51.0% 49.0%
41.7%
45.0% 3Q09
Source: Company financial reports
38.8%
-
1Q11
5.0%
6.7%
7.0%
25,000
11.0% 7.0%
4.8%
6.5%
4.2%
20,000
25,000
6.0%
20,000
5.5%
15,000
5.0%
10,000
4.5%
5,000
4.0%
5.9%
10.1%
7.1%
6.0%
10.0%
7.6%
6.7%
9.0% 15,000 8.0% 10,000 7.0% 5,000
-
3.5% 3Q09
4Q09
1Q10
2Q10
Total Assets (QAR mn)-LHS
Source: Company financial reports
3Q10
4Q10
1Q11
Return on Assets-RHS
6.0%
-
5.0% 3Q09
4Q09
1Q10
2Q10
Total Shareholders' Equity (QAR mn)-LHS
3Q10
4Q10
1Q11
Return on Shareholders' Equity-RHS
Source: Company financial reports
The company has registered QoQ growth of 3.9% in the top line. The growth in sales revenue was mainly associated with QoQ increase in the average prices of related products, during 1Q11. However, during the quarter under review, the company has recorded significant QoQ decline in its operating costs along with improvement in gross margin to 55.2%, which has led net profitability to register QoQ growth of 37.9% in 1Q11.
May 2011
10
Global Research - Saudi Arabia
GCC Petrochemical Quarterly Report
Sector Outlook & Recommendations The regional sector witnessed outstanding financial performance in 1Q11, where the profitability (based on our regional petrochemical coverage) was recorded at USD3.1bn. This indicates the regional profitability registered impressive YoY growth of 49.9% and witnessed 27.8% growth on quarterly basis, during the quarter under review. On the other hand, based on our regional petrochemical coverage, the regional sales revenue in 1Q11 witnessed YoY and QoQ growth of 33.5% and 7.6%, respectively. It is noteworthy that the improvement in average prices and volumetric sales remained crucial factors in 1Q11; where higher prices were remained the key driver for QoQ growth. Moreoever, we cannot ignore the positive impact of improvement in operating performance, which has led the regional operating margin to reach at 32.1% in 1Q11 as compared to 29.3% recorded in 4Q10. It is worth mentioning that the region is still facing political crisis in some parts i.e. Yemen, Syria and Libya; where these countries have limited overall contribution in the region. However, we cannot ignore the potential logistic threat from Mediterranean sea (where Libyan crisis is still in progress), which is among the key trading routes to European and other Western markets. It is noteworthy that the mentioned factor is in addition to the slow demand recovery around the globe. Based on our regional coverage, the sector’s net profitability is expected to show QoQ growth of 7.2% in 2Q11, which will translate into YoY expected growth of 55.5%. We believe the expected higher average prices will continue to contribute significant role in expected quarterly growth. Consequently, the primary impact of estimated QoQ gain prices (in 2Q11) will reflect directly on the sector’s sales revenue, which is expected show QoQ and YoY growth of 8.7% and 29.1%, respectively. Moreoever, we are expecting minute QoQ improvement in the regional capacity utilization, on the back of slow improvement in demand and ongoing regional uncertain situation. In addition, the regional gross, operating and net profitability margins are expected to record at 38%, 31% and 22%, respectively, in 2Q11. The expected QoQ growth in the regional sector, in 2Q11, is mainly based on estimated higher prices with minimal positive impact of further improvement in operational activities. Hence, any unexpected movement in the average prices could impact the regional sector’s financial growth. However, we believe the complexes with diversified (i) target market (i.e. Asian and Far East markets) and (ii) product line (i.e. high concentration of value added products) will outperform the region’s expected financial performance. We, therefore, reiterate our ‘Neutral’ stance for the sector with SIPCHEM and IQ as our top pick in 2Q11.
May 2011
11
Global Research – Saudi Arabia
GCC Petrochemical Quarterly Report
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May 2011
12
Global Investment House Website: www.globalinv.net Global Tower Sharq, Al-Shuhada Str. Tel. + (965) 2 295 1000 Fax. + (965) 2 295 1005 P.O. Box: 28807 Safat, 13149 Kuwait
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