Cairo – Mubasher: MubasherTrade Research (MTR) on Sunday announced initiating coverage for Sidi Kerir Petrochemicals Co. (Sidpec) with a price target (PT) set at EGP 25.53.
“Using a discounted cash flow model, we reached a 12-month price target (PT) of EGP 25.53/share for Sidpec, implying an upside potential of 36% over market price. Hence, we initiate coverage with a Buy/Moderate Risk rating,” the research firm said in its report.
Sidpec is an ethylene cracker with an annual production of 300,000 tonnes.
The undersupply of the global ethylene market tends to translate into higher margins for polyethylene producers, the report said.
It added that despite the 24 million tonnes (15% of current global capacity) of additional “global ethylene capacity that is set to come online between 2018 and 2020, the market appetite will remain unsatisfied.”
Accordingly, MTR does not expect prices to decline by 2018, which in turn ensures strong profitability for Sidpec.
The Egyptian petrochemical company is the only ethylene producer in the Egyptian market that produces a third of the local ethylene consumption.
Ethydco, a 20%-owned subsidiary of Sidpec, is a 450,000-tonne ethylene cracker that is scheduled to commence commercial operation in the Egyptian market in the first quarter of 2017.
“Although Ethydco is expected to export more than 70% of its production, this incremental capacity would transform the market structure into an oligopoly,” the report stated.
It added that Carbon Holding has started the construction of a $6.9 billion petrochemical complex called "Al Tahrir Complex" in Ain Sukhna, which is set to be the largest naphtha cracker in the world. The plant will annually add 1.5 million tonnes of ethylene by 2022, as well as other aromatics that will be used in the production of other commodity chemicals.
“The complex will also tap export markets, suggesting intense competition in the local market when it starts commercial operations,” the report showed.
Egyptian Exchange-listed Sidpec's products are benchmarked to international prices, which means that 100% of its top line is denominated in US dollars, while around 40% of its cost of goods sold (COGS) is denominated in Egyptian pounds.
“Accordingly, the devaluation of the EGP could feed into higher profitability margins for Sidpec,” MTR highlighted.
Sidpec's stock ended Sunday at a decline of 3.39% to EGP 18.04.
