Global Research Equities Saudi Arabia - GulfBase.com 22-03-2009.pdf · 2012-11-27 · Global...

Global Research

March 2009

Equities

Sahara Petrochemicals Company

Saud

i Ar

abia

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1Sahara Petrochemicals CompanyMarch 2009

Tickers: SPC AB (Bloomberg) 2260.SE (Reuters)

Listing: Saudi Stock Exchange (Tadawul)

Current Price: SR12.15 (As on 10th March, 2009)

March 2009

Buy

Sahara Petrochemical Company - SAHARA

• Sahara Petrochemical Company ‘Sahara’, a Saudi Joint Stock Company, was founded by the Zamil Group. Al-Zamil Group is one of Saudi Arabia’s leading industrial groups with diversified interests ranging from banking and industrial investments to petrochemicalsand food manufacturing.

• The two main revenue sources for Sahara Petrochemicals will be Al-Waha Polypropylene plant, which is operated by its 75.0% owned subsidiary Al-Waha Petrochemicals, and Saudi Ethylene and Polythene Company in which Sahara has an effective stake of 24.4%.

• The total world Polypropylene Capacity is estimated to be 49.6mn tons in 2008. Basell, which is a 25.0% stakeholder in Al Waha Polypropylene plant, has a 24.0% share in world Polypropylene production. British Petroleum has a share of 11.0% while SABIC has a share of 10.0%.

• North-East Asia region is the largest consumer of polypropylene products with an estimated share of 33.0%. North America and Western Europe are the other major consumers of Polypropylene. Though Middle East has an estimated share of 7.0%, the region is likely to increase its share going forward on the back of economic growth focused on diversification.

• Al-Waha Polypropylene plant is expected to come online at the end of 1Q 2009. Al-Waha Petrochemicals is aiming to produce high specification polypropylene products using themost advanced propane dehydrogenation technology. The Polypropylene sales will be insulated from the current downturn to a certain extent as the company will produce those polypropylene grades which currently are imported in Saudi Arabia. Its affiliation withLyondell Basell will also facilitate transfer of technology.

• Al-Waha Petrochemicals will sell its produce both in the domestic market and the international market. The company will enter into off-take agreements with third parties whereby the risk of selling will be transferred to these undertaking firms. Thepolypropylene will be marketed globally by Basell, which has a presence in more than 120 countries.

• According to our projections the consolidated revenue for Sahara Petrochemicals will grow at a 2009-13 CAGR of 17.2% to SR1.8bn. The increase in revenue will be driven by increase in volumes sold of polypropylene at a 2009-13 CAGR of 13.1% to 414,000 tons. We have assumed 60.0% utilization rate in the first year of its Al-Waha plant operations


2 March 2009Sahara Petrochemicals Company

in view of the falling demand for petrochemical products brought about by the prevailing global financial crisis. We estimate the utilization rate to increase steadily going forwardto 92.0% in 2013 as the world economy enters the recovery phase.

• Al-Waha will source its feedstock from ARAMCO at a 25.0-28.0% discount. The discount will stay intact till 2011 after which it might be reduced or phased out to comply with the WTO regulations. We have assumed OPEC crude oil prices to range between US$65.0-70.0 in the long-term.

• Sahara’s share of income from Saudi Ethylene and Polythene Company (SEPC) is estimated to grow at a 2009-2013 CAGR of 10.0%. We are conservative as the full year of ethylene production is yet to be realized. Falling demand along with new additional ethylene capacity will keep ethylene margins depressed in 2009 before they start recovering from 2010 on the back of expected improvement in economic conditions.

• The earnings will start filtering in from 2009 as Al-Waha Polypropylene plant and SaudiPolythene and Ethylene Plant come online. We expect net profit of Sahara to grow at a2009-2013 CAGR of 43.2%. According to our projections there will be a 59.5% rise in profitability in 2010 as there will be a full year impact of the new operations of both Al-Waha Petrochemicals and SEPC. We expect the earnings to further grow by 74.6% in 2011 due to an expected increase in utilization rates and margins for both polypropylene and ethylene.

• On 10 April, 2007 Sahara Petrochemicals announced a rights share issue of 100.0mn shares. However, the rights issue has been delayed since then due to various reasons. The company has resorted to bridge financing to meet the short-term liquidity needs.We have assumed an increase in loans from banks to make up for cash shortfalls in our projections.

• We initiate our coverage on Sahara with a “BUY” recommendation. The fair value of the company based on the discounted cash flow method is SR 17.4 which offers an upside of43.2%.

Table 01: Investment IndicatorsPrices as on 10th March 2009 (SR)

Shares in issue (000)

Market Cap (SR mn)

52-week price range (SR)

12.15 187,500 2,278High 49.25 Low 10.60

YearRevenues (SR 000)

Net Profit (SR 000)

EPS (SR)

BVPS (SR)

ROE %

P/E (x)

P/BV (x)

2011F 1,406,087 231,502 1.23 14.1 9.1% 9.84 0.86

2010F 1,132,407 132,605 0.71 13.0 5.6% 17.18 0.93

2009F 960,823 83,152 0.44 12.1 3.7% 27.40 1.00

2008A 3,393 (39,387) (0.21) 11.7 -1.7% NM 1.03

2007A 16,757 (5,112) (0.03) 12.5 -0.2% NM 3.47

Source: Company Accounts and Global ResearchHistorical P/E & P/BV multiples pertain to respective year -end prices, while those for future years are based on closing prices on the Tadawul as of March 10th 2009


March 2009 3Sahara Petrochemicals Company

Chart 01: Share Price Performance

Source: Zawya and Saudi Tadawul

4,000

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10152025303540455055

TASI Sahara



Company Overview

Sahara Petrochemical Company

Sahara Petrochemical Company ‘Sahara’, a Saudi Joint Stock Company was founded by the Zamil Group. Al-Zamil Group is one of Saudi Arabia’s leading industrial groups with diversified interests ranging from banking and industrial investments to petrochemicals andfood manufacturing.

Sahara made its Initial Public Offering in May 2004 when 6.0mn shares were offered at a price of SR50/share which represented 20.0% of the company’s share capital at that time. Sahara invests in petrochemical, chemical industrial projects and related utilities requirements to manufacture basic and intermediate products such as propylene, polypropylene, ethylene, and polyethylene. Sahara Petrochemicals has a 75.0% stake in Al Waha Petrochemical Company (Al Waha). Al- Waha Petrochemicals plant will have a capacity to produce 450,000 tons per annum of polypropylene when it comes online in late 1Q 2009. Sahara also has a 32.5% stake in Tasnee and Sahara Olefins Company (TSOC) which is a Joint venture with National IndustrializationCompany. Tasnee and Sahara Olefins Company acts as a holding company with a 75.0%stake in Saudi Ethylene and Polyethylene Company.

Chart 02: Sahara Petrochemicals Holding

Source: Global Research

Table 02: Board of DirectorsNames Position in Sahara

Eng. Abdulaziz Bin Abdullah Al Zamel Chairman

Mr. Fahad Bin Abdullah Al Zamel Managing Director

Dr. Abdulrahman Bin Abdullah Al Zamel Member

Mr. Jabr Bin Abdulrahman Al Jabr Member

Mr. Tariq Bin Metliq Al Metliq Member

Mr. Saeed Bin Omar Al Esaey Member

Mr. Abdul Rahman al Rawwaf Member

Mr. Abdulrahman Bin Hael Saeed Member

Mr. Rashed Bin Saif Al Gurair Member

Dr. Saad Bin Hamdi Al Zaeem Member

Mr. Sultan Bin Khaled Bin Mahfouth Member

Source: Company Website

75.0%

dd32.5%50.0%

75.0%

Sahara Petrochemicals

Al-Waha Petrochemicals

Tasnee and Sahara Olefins

Sahara and Maaden Joint venture

Saudi Ethylene and Polythlene Company



Table 03: Senior ManagementNames Position in Sahara

Fahed Abdullah Hamad Al Zamil Managing Director

Esam F Hymdi Executive President

Hammad S Al Shammary GM. Administration and HR. Manager

Saeed Bayounes GM. Maintenance and Technical Services

Abdulmohsen Al Hammad Finance Manager

Source: Zawya

Al Waha Petrochemicals Company

Al-Waha Petrochemical Company (‘Al-Waha’) was established in September 2006, as Sahara’s first majority owned industrial project subsidiary. It is located in the Industrial cityof Jubail in the Eastern Province of the Kingdom of Saudi Arabia,

Al-Waha is a limited liability joint venture company which will operate a petrochemical complex for the production of 460,000 tpa of propylene which will serve as a feedstock for the production of 450,000 tpa of polypropylene. The project is expected to come online at the end of 1Q2009. The target market includes both the regional and the international markets.

A Shareholders Agreement was signed by Sahara and Basell on 1 December, 2004. Sahara has a 75.0% stake while Basell has a 25.0% stake. The agreement includes a license to utilize Basell’s most advanced polypropylene technology, the Spherizone process. Saudi Aramco will supply the propane feedstock to the company. The polypropylene from the new plant will be marketed globally by Basell. The propane dehydrogenation unit will be based on the UOP Oleflex process.

Basell, which merged with Lyondell Chemical Company in December 2007, is the world’s largest producer of polypropylene and polyethylene as well as advanced polyolefinproducts. Basell is also a global leader in the development and licensing of polypropylene and polyethylene processes. Basell has presence in more than 120 countries through its manufacturing facilities and joint ventures.

Tasnee and Sahara Olefins Company

Tasnee & Sahara Olefins Company is a Joint venture between Sahara Petrochemicals andNational Industrialization Company of Saudi Arabia. National Industrialization Company has a share of 60.4% while Sahara has a share of 32.5%. The rest is held by General organization for Social Insurance (GOSI). The joint venture established the Saudi Ethylene and Polyethylene Company (SEPC) which is located in Jubail. Tasnee & Sahara OlefinsCompany has a 75.0% stake in SEPC while the remaining equity is held by Basell Polyolefin. The plant will have a capacity of 1.0mn tpa of ethylene, 285,000 tons of propylene, 400,000 tons of high-density polyethylene, 400,000 tons of low density Polyethylene along with other derivatives.



Sahara and Maaden Joint venture

Ma’aden and Sahara Petrochemical Company have signed a Memorandum of Understanding in respect of the construction of the caustic soda production plant. The plant will be located at Jubail Industrial City to allow ethylene to be delivered by pipeline from the Tasnee Ethane Cracker.

Caustic soda is an essential feedstock needed for the refining of bauxite to alumina. Itis produced from the electrolysis of brine, along with chlorine which is later used in the manufacture of ethylene di-chloride (EDC). The joint venture also proposes to manufacture EDC for export. The cost of the project will be around US$400-500mn. The joint venture will supply caustic soda to a proposed 740,000 tons-per-year aluminum smelter that Maaden would jointly develop with Rio Tinto at a total cost of $10.5bn.



Shareholding and Liquidity

Zamil Group Holding Company is a major shareholder in Sahara Petrochemicals with a 7.5% stake. 92.5% share is held by the general public.

Table 04: Sahara Shareholders Shareholder Holding

Zamil Group Holding Company 7.5%

General Public 92.5%

Source: Zawya

Sahara petrochemical share turnover reached 326.9mn shares in 2006 which was in-line with a rise in total market turnover which reached 73.4bn. The company’s market capitalisation doubled to SR8.1bn in 2007. However the capitalisation plunged by 72.0% in 2008 as petrochemical margins on the back of falling crude oil prices which took a nosedive in 2H08.

Table 05: Stock Liquidity

YearVolume Traded

(mn)Market Price-Year

End SRMarket Cap

(SR mn)

2006 326.9 29.7 4,462

2007 308.1 43.2 8,109

2008 286.4 12.0 2,259

2009* 32.8 12.1 2,278

Source: TADAWUL, Global Research *The volume traded figure for 2009 is the aggregate volume for the period 01 January-10March 2009. The marketcap and share price are as of 10, March 2009.

Share Price Movement

Share price touched SR55 on 15 January, 2008 as sustained rise in oil prices and consequently a rise in petrochemical margins boosted investor sentiments. However the share price took a plunge in the 2H08 as Saudi Tadawul got engulfed in the global financial crisis. The Saudistock market lost 52.6% of its capitalization in 2008. The petrochemical sector lost 66.1% in 2008 as crude oil price took a plunge in 2H08 indicating a massive slowdown in demand for petroleum and related products.



Petrochemicals Overview

Petrochemical is an intermediate chemical derived from petroleum, hydrocarbon liquids or natural gas, such as: Ethylene, Propylene, Benzene, Toluene and Xylene. Two important sources of feed stock for petrochemicals are petroleum (naphtha & gasoline) and natural gas, which are cracked to produce ethylene and propylene. Generally, petroleum is a major source for producing ethylene, propylene and benzene while gas is mainly use to produce methane. On the basis of chemical composition, basic chemicals are divided into three main classes:

1 Olefins are the petrochemical industry’s most common building blocks, used in theproduction of many petrochemicals and plastic products. The olefins products usuallyinclude (i) Ethylene, (ii) Propylene and (iii) Butene -1

2 Aromatics are a group of hydrocarbon products that form the basis for commodity chemicals used in the production of clothing, paints, packaging and other products. The aromatic products include (i) Styrene, (ii) Benzene and (iii) Para-xylene.

3 Oxygenates are a group of chemicals comprising alcohols and ethers. The primary oxygenate products are (i) Methyl Butyl Ether (MTBE), (ii) Methanol and (iii) crude industrial Ethanol.

Chart 03: Natural Gas Composition Chart 04: Naphtha Composition

Source: NaturalGas.org Source: Adhesive Raw Material Fact Volume 2, Issue 4

General Production flow

The production process of petrochemical products starts from the cracking of liquid petroleum (naphtha) and natural gas, the feedstock. The outcome of the cracking is a production of various petrochemical products like ethylene, propylene, benzene and so on, which are used as a feedstock for producing intermediates. Intermediate chemicals are those petrochemical products, which are used to produce polymers and other industrial products.

MethaneHydrogen SulphideNitrogenOxygenEthanePropaneButane

Ethylene

Others

Methane

Propylene



Chart 05: Production Flow Diagram

Source: Industry Sources & Global Research

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MENA Petrochemical Industry

Saudi Arabia: The largest petrochemical player

In 2008, Saudi Arabia occupied 55.3% of the total MENA capacity of 88.5mn tons, mainly through SABIC. SABIC is not only a major player in Saudi Arabia, but the company has a vital position in the international market. In 2008, SABIC accounted for around 55.0% of the total Saudi Arabia’s capacity and around 30.0% of MENA capacity. Iran through its National Petrochemical Company accounts for 19.4% while Qatar accounts 7.8% of MENA capacity.

Table 06: Country-Wise MENA Capacity (mn tons)Country 2008 Share

Saudi Arabia 48.9 55.3%

Qatar 6.9 7.8%

Egypt 3.1 3.5%

UAE 1.4 1.6%

Iran 17.1 19.4%

Bahrain 0.5 0.5%

Kuwait 3.6 4.1%

Oman 2.1 2.4%

Rest of MENA 4.8 5.4%

Total MENA Capacity 88.5 100.0%

Source: Zawya

Capacity Expansion in MENA

MENA region has planned for a massive expansion of petrochemical capacity of different grades with an estimated cost of US$93.2bn (SR349.5bn). Based on the given expansion plans, the production capacity in MENA region will increase to 98.9mn tons in 2009. Going forward, we expect the production capacity to increase at a 2010-2012 CAGR of 4.5% to 117.5mn tons. Major capacity expansion in petrochemicals of different grades is expected in Saudi Arabia, which will account for 63.5% of total capacity expansion in 2009 followed by Kuwait which is expected to contribute 19.9%. By 2012 the capacity in the MENA region will further increase largely due to capacity expansions in Saudi Arabia and Qatar.

Chart 06: MENA Capacity Expansion (mn tons)

Source: Zawya & Global Research

80.085.090.095.0

100.0105.0110.0115.0120.0

2008E 2009F 2010F 2011F 2012F0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Total Capacity Expansion Growth In Capacity Expansion



Product-wise capacity expansion

The total expected increase of 34.6mn tons in 2009-2012 in petrochemical capacities of different grades in the MENA region will comprise of (i) 22.0mn tons of basic chemical-olefins, (ii) 6.2mn tons of basic chemical-Aromatics and (iii) 6.4mn tons of basic chemical-oxygenates.

Table 07: Grade-Wise Capacity Expansion in MENA (Tons) 2008E 2009F 2010F 2011F 2012F

Basic-Olefins 2,336,250 6,731,250 4,906,750 3,409,750 4,630,000

Basic-Aromatic 1,848,750 2,566,250 1,200,000 - 600,000

Basic-Oxygenate 1,339,000 1,213,000 2,788,000 1,020,000 -

Expected Expansion 5,524,000 10,510,500 8,894,750 4,429,750 5,230,000


Country-wise capacity expansion

Saudi Arabia – Capacity expansionSaudi Arabia is expected to make an addition of 6.6mn tons of basic chemical of different grades out of the total addition in regional capacities of 10.5mn tons in 2009. By 2012 it is expected to add a further 7.4mn tons.

Table 08: Saudi Arabia Additional Capacity (Tons) 2008E 2009F 2010F 2011F 2012F

Basic-Olefins 1,911,250 5,568,750 3,965,000 1,900,000 1,050,000

Basic-Aromatic 573,750 191,250 600,000 - -

Basic-Oxygenate 1,039,000 913,000 - - -

Expected Expansion 3,524,000 6,673,000 4,565,000 1,900,000 1,050,000

Total Expected Expansion 5,524,000 10,510,500 8,894,750 4,429,750 5,230,000

Contribution in Expansion 63.8% 63.5% 51.3% 42.9% 20.1%


Kuwait – Capacity expansionBased on the given expansion plans, production capacities of basic chemicals in Kuwait will increase by 2.6mn tons in 2009. This will increase the country’s capacity from 2.1mn tons in 2007 to 6.3mn tons in 2009. Table 09: Kuwait Additional Capacity (Tons) 2008E 2009F

Basic-Olefins 425,000 425,000

Basic-Aromatic 775,000 1,875,000

Basic-Oxygenate 300,000 300,000

Expected Expansion 1,500,000 2,600,000

Total Expected Expansion 6,170,250 13,046,750

Contribution in Expansion 24.3% 19.9%




Oman – Capacity expansion500,000 tons additional capacity of Oman will come on-stream in 2009 and will lead to an increase in the country’s total capacity to 2.6mn tons in 2009. The capacity is expected to increase further to reach 3.41mn tons in 2010 and 3.7mn tons in 2011. The increase in capacity is mainly due to the full year impact of those capacities which come online in the middle of the year and an addition of new capacities of oxygenates in 2Q2010.

Table 10: Oman Additional Capacity (Tons) 2008E 2009F 2010F 2011F 2012F

Basic-Olefins - - - - -

Basic-Aromatic 500,000 500,000 - - -

Basic-Oxygenate - - 810,000 270,000 -

Expected Expansion 500,000 500,000 810,000 270,000 -




Qatar – Capacity expansionQatar is expected to contribute 6.2% in total upcoming production capacity in 2009 mainly due to additional capacity from QAFAC-II complex coming online in 1Q2009. Consequently, the production capacity is expected to reach at 9.7mn tons by 2011 and will reach at 12.4mn tons by the end of 2012.

Table 11: Qatar Additional Capacity (Tons) 2008E 2009F 2010F 2011F 2012F

Basic-Olefins - 650,000 650,000 1,500,000 2,180,000

Basic-Aromatic - - - - 600,000

Basic-Oxygenate - - - - -

Expected Expansion - 650,000 650,000 1,500,000 2,780,000




MENA expansion schedule

The following table shows the capacity of major expansions and their scheduled completion dates. Major expansions of 3.8mn tons and 1.7mn tons are expected to come online in Saudi Arabia in 2010. In Kuwait additional capacity of 1.1mn tons is expected to come online by the end of 1Q2009. The other major capacity additions include 2.4mn tons in Qatar which is expected to come online in 1Q2010 and 1.7mn tons in Bahrain which is expected to come online in 2010.



Table 12: MENA Capacity Expansion (Tons)Country Basic-Olefins Basic-Aromatic Basic-Oxygenate Expected Production

Saudi Arabia 950,000 - - 4Q2008

Saudi Arabia 1,700,000 - - 2010

Saudi Arabia 3,800,000 - - 3Q2010

Saudi Arabia 2,100,000 - - 2012

Saudi Arabia 1,285,000 - - 4Q2008

Saudi Arabia - 600,000 - 2010

Saudi Arabia 1,200,000 - - 2009

Kuwait - 1,100,000 - 1Q2009

UAE - 600,000 - 2010

Egypt 350,000 - - 4Q2009

Oman - - 1,080,000 2Q2010

Qatar 1,300,000 - - 4Q2008

Qatar - - 2,430,000 1Q2010

Qatar 1,500,000 - - 2011

Qatar 880,000 600,000 - 2012

Qatar 1,300,000 - - 2012

Algeria - - 1,000,000 4Q2010

Algeria 1,400,000 - - 2012

Bahrain - - 1,728,000 2010




Saudi Petrochemical Industry

Introduction

Saudi Arabia is a key player in the global petrochemical industry and the largest producer in the MENA region. Saudi Arabia petrochemical production capacity contributed 55% to the MENA petrochemical capacity in 2008. A major part of Saudi Arabia’s petrochemical production is exported. The Saudi petrochemical industry is mainly concentrated in the industrial cities of Jubail and Yanbu. Chart 07: Saudi Share in Region 2008


Feedstock a competitive edge

The Kingdom’s petrochemical industry enjoys high profit margins, mainly due to a naturalcompetitive advantage of availability of low cost feedstock, on account of vast crude oil and natural gas resources. The cost of natural gas for the Saudi Arabian petrochemical industry is just US$0.75/mmbtu, which is far below than the international prices. The companies also get a 25-30% discount on naphtha prices. The WTO agreement confirmed Saudi Arabia hasthe right to retain low feedstock prices on the grounds that its hydrocarbon resources are a natural advantage and low prices are not classed as a subsidy. The agreement also allows a dual pricing system, where domestic users pay less than the export price for feedstock, under the reasoning that domestic customers do not require export infrastructure or export marketing. However the discount is likely to be abolished or phased out post 2011.

Rest of MENA,45% Saudi Arabia,

55%



Major Players

Saudi Arabian Basic Industries (SABIC)

SABIC is one of the world’s leading petrochemical producing company and was established by the Saudi government in 1976 in furtherance of a government policy to diversify the Saudi industrial base outside the oil sector and in order to make use of crude oil-associated gases at well-heads which had, until that point, been flared off. The intention was to builda chain of basic, large-scale industries located close to or with easy access to gas resources and to develop export-oriented non-oil businesses of strategic importance to Saudi Arabia, including hydrocarbon-based chemicals and basic metal industries.

Now SABIC has a total 21 petrochemical affiliates and YANSAB is one of them. The affiliatesof SABIC are distinguished in six strategic business units (SBUs), organized by products. These are: Basic Chemicals, Intermediates, Polymers, Specialized Products, Fertilizers, and Metals. Each of these is headed by a Vice-President. These six business units make four different kinds of products:

1 Chemicals – Basic Chemicals, Intermediates and Specialized Products (three SBUs)2 Plastics – Polymers (one SBU)3 Fertilizers (one SBU)4 Metals (one SBU)

Table 13: SABIC’s AffiliatesName of Affiliates Location Holding of SABICArabian Petrochemical Company Saudi Arabia 100.0% SABIC Asia Pacific Singapore Singapore 100.0% SABIC Industries Investments Company Saudi Arabia 100.0% SABIC Innovative Plastics United States 100.0% SABIC Luxembourg Luxembourg 100.0% SABIC Sukuk Company Saudi Arabia 100.0% SABIC UK Petrochemicals UK 100.0% Saudi Iron and Steel Company Saudi Arabia 100.0% Saudi European Petrochemical Company Saudi Arabia 80.0% Jubail United Petrochemical Company Saudi Arabia 75.0% National Industrial Gases Company Saudi Arabia 70.0% Yanbu National Petrochemicals Company Saudi Arabia 56.0% Arabian Industrial Fibers Company Saudi Arabia 53.9% Al Jubail Fertilizer Company Saudi Arabia 50.0% Al Jubail Petrochemical Company Saudi Arabia 50.0% Eastern Petrochemical Company Saudi Arabia 50.0% National Chemical Fertilizer Company Saudi Arabia 50.0% National Methanol Company Saudi Arabia 50.0% Saudi Methanol Company Saudi Arabia 50.0% Saudi Petrochemical Company Saudi Arabia 50.0% Saudi Yanbu Petrochemical Company Saudi Arabia 50.0% Saudi Arabian Fertilizer Company Saudi Arabia 42.9% Saudi Kayan Petrochemical Company Saudi Arabia 35.0% Gulf Petrochemical Industries Company Bahrain 33.3% Gulf Aluminum Rolling Mill Company Bahrain 30.3% Maaden Phosphate Company Saudi Arabia 30.0% Power and Water Utility Company for Jubail and Yanbu Saudi Arabia 24.8% Aluminum Bahrain [Via SABIC Industries Investments Co.] Bahrain 20.0% National Chemical Carriers Saudi Arabia 20.0%

Source: Zawya



Saudi Chemical Company

Saudi Chemical’s line of production includes the latest generation, safest, and worldwide commonly used civil explosives and non-electrical detonators, which are KEMULEX, PRILLEX, and SANEL, respectively. KEMULEX is an emulsion type explosive characterized by its high detonation velocity and good waterproof properties and packaged in special plastic cartridges with different sizes that meet the clients’ needs. PRILLEX is a dry blasting agent, which is composed of Ammonium Nitrates and Fuel Oil (ANFO).

Saudi Chemical Company also manufactures non-electric detonators “SANEL” that provide the precious control and accuracy that reduces blasting vibration and improves fragmentation for all kind of blasting. SANEL is produced in a wide range of delay times, lengths, and models for different types of use. In addition, the company offers wide variety of Electrical Detonators, and Detonating Cords, in addition to all accessories for rock blasting and oil exploration shooting.

Progress continues and Saudi Chemical proceeds along the path of ongoing improvement, advancing in all aspects that go beyond expectation to provide domestic and global supplies of most modern explosives. This resulted in new production line for ENVIROSEIS, the latest in seismic explosives specially designed for seismic exploration. Proudly, ENVIROSEIS is now used for oil and gas exploration in Saudi Arabia. It is worth mentioning that the company’s activity is not limited to production of civil explosives only, but also will be extended to include military explosives in manufacturing and demilitarization processes.

Capacity expansion

During the last 4 years, Saudi Arabia’s economy experienced high growth rates mainly due to high crude oil prices. This large dependence on crude oil revenues leads to high sensitivity to change in crude oil prices. In order to minimize this risk the government of Saudi Arabia has promoted non-oil industries. Consequently a massive expansion in petrochemical capacity is taking place which will increase at a 2008-12 CAGR of 6.8%. Major new capacities in Saudi Arabia are taking place in Jubail industrial area.

Chart 08: Saudi Arabia Capacity Expansion

Source: Zawya and Global Research

40.0

45.0

50.0

55.0

60.0

65.0

2008E 2009F 2010F 2011F 2012F0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

Capacity Expansion Growth



Major capacity expansion – Company WiseMajor additional petrochemical capacity in Saudi Arabia is expected from Saudi Kayan Petrochemical Company (KAYAN), which will come on line on 3Q2010. KAYAN is expected to contribute by 23.0% in the total Saudi Arabia expansion of 16.5mn tons. However, the capacity from Eastern Petrochemical (SHARQ) and YANSAB will contribute to 24.3%, with a combined capacity of 4.0mn tons.

Table 14: Capacity Expansion by Company

Name

Basic-

Olefins

Basic-

Aromatic

Basic-

Oxygenate

Expected

Completion date

Saudi European-IBN ZAHR 950,000 - - 4Q2008

Sino-Saudi Petrochemical Project 1,700,000 - - 2010

Saudi Kayan 3,800,000 - - 3Q2010

YANSAB 2,005,000 - - 4Q2008

SIPCHEM-Olefins 2,100,000 - - 2012

Sahara/Tanesse-Saudi Ethylene & Propylene Plant 1,285,000 4Q2008

Petrokemya-PVC and Offsite - - - 2010

Sadaf-Styrene Plant-Saudi Petrochemical - 600,000 - 2010

Delta Oil 1,200,000 - - 2009




Feed Stock Prices

Gas prices

Crude oil prices are used as a benchmark to set gas-well head price in the international markets. However, gas prices are highly subsidized in certain regions of the world, mainly the Middle-East, North Africa, and South Asia. The gas-well head prices, in these regions, are subject to pre-determined discounts. Gas well head prices in the international markets; shot up by more than 40.0% from US$4.4 per mmbtu in 2001 to US$8.0 per mmbtu in 2008. However the gas prices followed the sharp decline in crude oil prices in 2H2008. We estimate the gas prices stay in the range of US$6.0-6.5 per mmbtu in 2009 and 2010.

Chart 09: Prices of Gas (US$ per mmbtu)

Source: EIA & Global Research

Crude oil prices

Over the period of the last 5 years, OPEC Basket price witnessed a sustained rise in crude oil prices to an all-time high of over US$140.0 per barrel in July 2008. The surge in prices was primarily due to:

• Global political uncertainty• High global economic growth• Lack of refining capacity which caused a shortage of refined products• Speculation in oil futures

Chart 10: OPEC Historical Crude Oil Prices (US$ per barrel)

Source: OPEC

5

5.5

6

6.5

7

7.5

8

8.5

2005 2006 2007 2008 2009E 2010E 2011E 2012E

20

30

40

50

60

70

80

90

100

2004 2005 2006 2007 2008

Crude Oil Price



However, in the 2H2008 the situation took a drastic turn as the oil prices dived to below US$40.0 per barrel, the lowest level in five years. Year 2008 also saw the demand decreasingfor the first time since 1983 according to OPEC estimates. High oil prices and removal ofsubsidies in the developing countries in the first seven months led to demand destruction. Thecredit crunch raised its ugly head in the latter part of the year as bankruptcies and bail-outs became a regular feature, precipitating a slowdown in world economy and hence oil demand which was reflected in the sharply falling oil prices. Our long term forecast for OPEC crudeoil is US$65.0-70.0.

Chart 11: Forecasted OPEC Crude Oil Prices (US$ per barrel)

Source: OPEC& Global Research

Prices of Methanol

The price of methanol has surged by 191.7% to US$472.6 per ton in 2007 as compared to US$162 per ton in 2001. The increase in the price of methanol during the period of 2001-07 is mainly because of higher gas prices, which have increased due to higher crude oil prices. Moreover, methanol is derived from methane which is mainly obtained from the cracking of natural gas while sometimes from naphtha. The availability of natural gas at highly subsidized price of US$0.75 per mmbtu further strengthened the margin of Saudi petrochemical units.

Chart 12: Historical Average Prices of Methanol (US$ per ton)

Source: Methanex

Goring forward, the expected future prices of methanol is based on the movement of our expected crude oil prices, which will also affect the price of natural gas in international

50.0

55.060.0

65.070.0

75.0

80.085.0

90.095.0

100.0

2008A 2009F 2010F 2011F 2012F 2013F

050

100150200250300350400450500

2001 2002 2003 2004 2005 2006 2007Methanol Average Historical Prices



market. Based on our expectations, the price of methanol will decline by 44.6% in 2009 to reach US$202 per ton compared to US$365 per ton in 2008. However, we expect a gradual increase in the average prices of methanol to US$221 per ton in 2012, in line with our expected prices of crude oil.

Chart 13: Forecasted Average Prices of Methanol (US$ per ton)

Source: Methanex & Global Research

Methanol Applications

Methanol is used in manufacturing a wide variety of chemical products such as formaldehyde and Acetic Acid. Methanol, as a hydrogen carrier is being considered for fuel cell application and as an alternate fuel. Methanol was once known as wood alcohol, because it was originally produced as a by-product of the distillation of wood.

150

200

250

300

350

400

2008 2009E 2010E 2011E 2012E



Polypropylene Market

Polypropylene is a type of polymer which is used in a variety of applications including packaging, textiles, coating applications, plastic parts, containers for various users, decorative parts, automotive components, aircrafts interiors, stationary and cosmetics. The applications range from engineering and construction applications to consumer applications underlying the importance of polypropylene. Polypropylene is also replacing other plastics such as polyurethane because of its ability to be recycled.

North-east Asia region is projected to be the largest consumer of polypropylene products in 2009 with an estimated share of 33.0%. North America and Western Europe are estimated to be the other major consumers of Polypropylene products as can be seen in the chart below. Though Middle East will have an estimated share of 7.0% in 2009, the region is likely to increase its share going forward on the back of economic growth focused on diversification.The total world polypropylene demand is projected to be 51.3mn tons in 2009.

Chart 14: Forecasted Region-Wise Share in Polypropylene Demand 2009

Source: Alberta Polypropylene Market Report

The total world Polypropylene Capacity is estimated to be 49.6mn tons in 2008. As can be seen in the chart below Basell, which is a 25.0% stakeholder in Al Waha Polypropylene plant, has a 24.0% share in Polypropylene production. British Petroleum has a share of 11.0% while SABIC has a share of 10.0%. Saudi Arabia, which dominated Polypropylene capacity additions in 2008, will dominate in 2009 as well with the coming up of five steam crackers and three PDHplants. Most of the propylene produced will be converted into polypropylene and exported.

Chart 15: Company-Wise Share in Polypropylene Capacity in 2008

Source: Alberta Polypropylene Market Report

Propylene is the main input for production of polypropylene. Ethylene and Propylene are two main chemicals produced from Naphta crackers. The typical ethylene: propylene has

Africa/ Middle East7%

South East Asia9%

North America19%

South America5%

Western Europe19%

Cenral Europe/FSU3%

Indian SC5%

North East Asia33%

Basell24%

BP11%

SABIC10%

Reliance Industries/IPCLATOFINA

9% 9%

37%Other



been 1:0.65. Historically the demand for Propylene has grown at a faster than demand for ethylene. Traditionally the gap has been filled by producing more propylene from fluidizedcatalytic crackers. There are other on purpose propylene production technologies available to fill the gap. The methods available include production from propane dehydrogenation,metathesis, and methanol-to-olefins conversion. Though, none of these technologies are new,they have been little used, with the exception of propylene recovery from FCCs. According to CMAI 67.0% of propylene production comes from steam crackers and about 30.0% from FCCs. The remainder is mainly produced by propane dehydrogenation.

Propane Dehydrogenation Process

The Oleflex process uses proprietary platinum on alumina catalyst. Four adiabatic reactors areoperated in series. The dehydrogenation reaction is endothermic so interheaters are included between each reactor to maintain the desired reactor temperatures. The Oleflex process usesa CCR regenerator to continuously regenerate the catalyst and maintain high conversion and selectivity. (UOP Technology and More issue Oct 2005)

Chart 16: Propane Dehydrogenation Process

Source: www.uop.com



Polypropylene prices

Polypropylene prices increased at a 2004-08 CAGR of 12.8%. The price rise coincided with rise in oil prices which grew at a 2004-08 CAGR of 24.5%. The economic boom world over increased the appetite for polypropylene which maintained upward pressure on prices. The world economic growth rate reached 4.0% during this era fuelled by massive growth in the developing countries particularly China and India. However the polypropylene reduced sharply from their peak of US$2,100 per ton in August 2008 to around US$800 in January 2009 as crude oil prices collapsed in 2H08. We have assumed Polypropylene average prices of US$1,008 per ton in 2009.

Polypropylene prices have a high co-relation with crude oil prices. However, deviations can get larger if the demand in the end product market for propylene increases/decreases as it puts upward/downward pressure on the prices.

Chart 17: Polypropylene (US$/ton) and Crude Oil prices (US$ per barrel)

Source: Bloomberg & Global Research

With a slowdown in auto, construction and other large-scale manufacturing industries at large polypropylene prices are likely to stay depressed in 2009. We expect Polypropylene prices to stay in the range of US$1,000-1,100 per ton in 2009. The World Bank recently revised its estimate of world economic growth to 0.9% in 2009 reflecting the gloomy outlook. Goingforward, we expect polypropylene prices to start recovering from 2011 to around US$1,100-1,200 per ton which is aligned with our crude oil projections.

800.0

900.0

1,000.0

1,100.0

1,200.0

1,300.0

1,400.0

1,500.0

1,600.0

2004 2005 2006 2007 2008 2009F 2010F 2011F 2012F 2013F40.0

50.0

60.0

70.0

80.0

90.0

100.0

110.0

Polypropylene Crude Oil (RHS)



Sahara Petrochemicals Financial Overview

The two main revenue sources for Sahara Petrochemicals are Al-Waha Polypropylene plant, which is operated by its 75.0% owned subsidiary Al Waha Petrochemicals, and Saudi Ethylene and Polythene Company in which the company has an effective stake of 24.4%.

Revenue from Al Waha Plant

Al-Waha Polypropylene plant is expected to come online at the end of 1Q2009. We have assumed 60.0% utilization in the first year of its operations. The company will sell its produceboth in the domestic market and the international market. The company will enter into off-take agreements with third parties whereby the risk of selling will be transferred to these undertaking firms.

The polypropylene from the new plant will be marketed globally by Basell which has a presence in more than 120 countries. The Propylene sales will be insulated from the current downturn to a certain extent as the company will produce high specification polypropylenegrades which are currently being imported in Saudi Arabia.

Propylene production, the raw material for polypropylene production, has always lagged behind ethylene production as many of the petrochemicals projects in the past were based on ethane crackers producing ethylene only. The additions to propylene capacity have been very small until the recent past.

According to our projections the revenue from Al-Waha plant will grow at a 2009-13 CAGR of 17.2% to SR1.8bn. The increase in revenue will be driven by increase in volumes sold at a 2009-13 CAGR of 13.1%.We have assumed that the polypropylene plant will operate at a 60.0% utilization rate in the first year of its operation and increase steadily going forward asdemand starts picking up.

Chart 18: Revenue Forecast from Polypropylene Sales (SR 000)


900,000

1,100,000

1,300,000

1,500,000

1,700,000

1,900,000

2009F 2010F 2011F 2012F 2013F55.0%60.0%65.0%70.0%75.0%80.0%85.0%90.0%95.0%

Revenue (LHS) Capacity Utilization (RHS)



Cost of propylene manufacturing

Al-Waha will produce Propylene from Propane using the Propane Dehydrogenation (PDH) process and eventually convert propylene into polypropylene. Typically 1.2 tons of propane is used to produce 1.0 ton of Propylene.

PDH process has three main advantages over propylene derivative producers. 1) - PDH plant produces a single product, propylene as opposed to naphtha cracking which is convenient for Al-Waha petrochemicals which is dedicated to producing polypropylene 2) - Production costs are diversified to a certain extent as the cost of propane is loosely connected with theprices of naphtha and propylene. 3) – Subject to availability of propane, PDH is generally more cost effective then sourcing propylene from outside as cost of shipping and storing propylene can be high.

Al-Waha will source its feedstock from ARAMCO at a 28.0% discount. The discount will stay intact till 2011. After that it might be reduced or phased out to comply with WTO regulations. We have kept the discount constant in our valuations.

Chart 19: Propane and Conversion Cost (US$) per ton


The propane price tends to follow the crude oil prices. We have based our propane price projections on our projections for crude oil prices. We estimate propane prices to stay around US$430 per ton in 2009. We expect the prices to recover to US$470 per ton in 2011. The conversion costs comprise of Utilities costs of around US$30.0 per ton, Catalysts and Chemicals cost of US$20.0 per ton and fixed expenses US$40.0 per ton. We have taken a5.0% increase in conversion costs going forward.

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

2009 F 2010 F 2011 F 2012 F 2013 F

Conversion cost Propane Cost



Cost of Polypropylene manufacturing

Basell recently introduced the Spherizone process which has superseded the Spheripol technology. The technology was commercialized in 2002. Spherizone uses a multi-zone circulating reactor and produces materials which have properties superior to any associated with other polypropylene manufacturing processes thus allowing Al-Waha petrochemicals to produce polypropylene grades currently imported in Saudi Arabia. Unlike Spherion, Spherizone utilizes the catalytic cracking technology.

Polypropylene uses propylene as its feedstock. We have forecasted the input cost for propylene to be around US$625-630 per ton which includes the depreciation cost. From 2011 onwards we expect the input price to increase to US$710-720 due to increase in Propane prices. We have estimated the cost of conversion to be US$73.0 per ton in 2009. Going forward we have taken a 5.0% increase in conversion cost per ton. We expect the overall costs to range around US$810-820 per ton going forward.

Chart 20: Cost of Manufacturing Polypropylene (US$) per ton


Saving from in-house production

The estimated saving from in-house production of propylene will be around US$110-150 per ton. According to our projections the market price for propylene will range around US$780-880 during the period 2009-13.

0100200300400500600700800900

2009F 2010F 2011F 2012F 2013FConversion cost Input Cost



Propylene Margins

Propylene margins have seen contrasting fortunes since the past few years as crude oil prices touched new highs before taking a dramatic turn to end up at current levels. Since 2005 the margins have fluctuated wildly from as high as US$800 per ton in the 2H2006 to aroundUS$100 per ton in late 2008. On average the margins remained around US$300 per ton during 2005-08. Going forward we believe the margins will remain depressed in view of the global economic downturn. According to our estimates the margins will remain in the range of US$85-100.

Chart 21: Propylene Price and Margin Forecast (US$/ton)


Polypropylene Margins

Polypropylene margins have fluctuated wildly as well since 2005 from below US$100 per tonin early 2005 to over US$500 per ton in 2H2008. Polypropylene prices touched US$2,000 per ton level in July 2008 before sliding down to US$800 per ton currently. The sharp slide coincided with the sharp fall in crude oil prices. Going forward we estimate the margins to range between US$230-300 per ton.

Chart 22: Polypropylene Price and Margin Forecast (US$/ton)


750

770

790

810

830

850

870

890

910

2009 F 2010 F 2011 F 2012 F 2013 F80

85

90

95

100

105

110

Prices (LHS) Margin (RHS)

900

950

1,000

1,050

1,100

1,150

1,200

2009F 2010F 2011F 2012F 2013F230

240

250

260

270

280

290

300

310

Polypropylene Price Margin



Tasnee and Sahara Olefins Company

Tasnee & Sahara Olefins Company, the joint venture between Sahara Petrochemicals andNational Industrialization Company of Saudi Arabia is likely to be the next major source of revenue. National Industrialization Company has a share of 60.4% while Sahara has a share of 32.5%. The joint venture has established the Saudi Ethylene and Polyethylene Company (SEPC) which is located in Jubail. Tasnee & Sahara Olefins Company has a 75.0% stake inSEPC while the remaining equity is held by Basell Polyolefin. Sahara has an effective stakeof 24.4% in the entity. The plant will have a capacity of 1.0mn tpa of ethylene, 285,000 tons of propylene, 400,000 tons of high-density polyethylene, 400,000 tons of low density Polyethylene together along with other derivatives.

Ethylene price averaged US$1,249 per ton in 2008. However the prices took a nose dive in 2H2008 as crude oil prices fell sharply as the credit crunch and the financial crisis came to thefore. The prices are currently hovering around US$600 per ton in January 2009. We expect prices to stay around US$580-600 in 2009 as a grim economic outlook will be accompanied by additional ethylene capacity coming online. However, we expect the prices to start picking up from 2011 onwards as the world economy gets back on track. Our long-term forecast for ethylene prices is around US$620-660 per ton.

Chart 23: Ethylene Price and Margin Forecast (US$ per ton)


540

560

580

600

620

640

660

680

2009F 2010F 2011F 2012F 2013F195

200

205

210

215

220

225

230

Ethylene (RHS) Margins (LHS)



Profitability

The earnings will start filtering in from 2009 as Al-Waha Polypropylene plant and SaudiPolythene and Ethylene Plant come online. We expect net profit of the company to grow ata 2009-2013 CAGR of 43.2% mainly on the back of increase in polypropylene volumetric sales and margins.

Sahara’s share of income from Saudi Ethylene and Polythene Company is projected to grow at a CAGR of 10.0%. We are conservative as the full year of ethylene production is yet to be realized. Falling demand along with additional ethylene capacity coming online in 2009 will keep the margins depressed for ethylene.

Chart 24: Sahara Forecasted Net Profit (SR 000)


We estimate the net profit to be around SR83.1mn in 2009. We have assumed a 60.0%utilization rate for 2009 in view of the prevailing economic conditions. The financial anddepreciation costs will come in making which will further strain the profits.

According to our projections there will be a 59.5% rise in profitability in 2010 as there willbe a full year impact of the new operations. We expect the earnings to grow further by 74.6% in 2011 as utilization rates and margins increase for both polypropylene and ethylene. We assume utilization rates to reach 90.0% in 2012 as the world economy recovers from the current slump.

75,000

125,000

175,000

225,000

275,000

325,000

375,000

2009F 2010F 2011F 2012F 2013F



EBITDA Margins

The EBITDA margins for Sahara of 40.9% in 2009 and onwards are comparable to margins of SABIC, the largest petrochemical producer in Saudi Arabia. Though SABIC’s portfolio is much more diversified, Sahara’s use of efficient technology for production of high qualitypolypropylene will help prop up the margins through lower cost. Sahara’s EBITDA margins are higher than YANSAB as Yansab’s revenue stream is mainly concentrated on ethylene and related projects. Ethylene margins took a nosedive when oil prices came down in 2H08 accompanied by new ethylene capacities coming online.

Table 15: EBITDA Margin % 2008 2009F 2010F 2011F 2012F

Sahara NM 40.9 40.5 40.7 40.9

SABIC 31.4 38.7 40.2 42.1 42.3

SIPCHEM 68.3 77.2 78.2 78.1 78.0

YANSAB NM 29.5 30.8 30.4 30.1

Source: Companies’ Annual Reports & Global Research

Net Margins

We expect the net profit margin of Sahara to be 8.7% as financial costs and depreciationcosts will be spread over a lower production base. Combination of expected price increase in polypropylene and capacity utilization rates will increase margins for Sahara to 20.0% in 2012 which will be slightly more than SABIC’s estimated margin. SIPCHEM has the highest estimated margins as it concentrates on producing high margin petrochemical products.

Table 16: Net Profit Margin (%) 2008 2009F 2010F 2011F 2012F

Sahara NM 8.7 11.7 16.5 20.0

SABIC 14.4 15.0 15.2 16.6 17.3

SIPCHEM 31.4 30.4 37.4 37.3 37.3

YANSAB NM 9.4 10.3 11.0 11.5

Source: Companies’ Annual Reports & Global Research



Valuation and Recommendation

We have used the Discounted Cash Flow Methodologies to value the company. Under this valuation we have used 5-year (FY2009-13) cash flow forecast for Sahara Petrochemicals.We have used constant growth Gordon Growth Model (GGM) to arrive at a terminal value for the company. The forecasted cash flow and the terminal value is then discounted at theWeighted Average Cost of Capital.

1-Risk free rate (RFR) of 5.5%2-Equity risk premium of 5.7%3-Beta of 1.24-A terminal growth rate of 3.0%5-Cost of debt of 7.0%

Since the main operations of Sahara Petrochemicals are yet to begin we haven’t used the relative valuation measures in our valuation.

Table 17: DCF CalculationSR 000 2009F 2010F 2011F 2012F 2013FFCF (698,402) 73,360 167,007 264,679 265,390 Discounted Cash Flow (631,608) 59,999 123,527 177,047 160,545 Terminal Value 3,608,509 Primary Value 2,303,285 Terminal Value (discounted) 2,413,775 Enterprise Value 4,717,060 Less: Debt 1,912,322 (as of 2008)Add:Cash and Cash equivalents 453,036 (as of 2008)Equity Value 3,257,774 Shares Outstanding (000) 187,500 Fair value per share 17.4


Sensitivity Analysis

We have carried out a sensitivity analysis to show the impact of change in terminal growth rate and WACC on the company’s fair value.

Table 18: Sensitivity AnalysisTerminal Growth Rate

WACC

1.0% 2.0% 3.0% 4.0% 5.0%8.6% 18.9 23.4 29.4 38.1 51.6 9.6% 14.8 18.1 22.5 28.3 36.8

10.6% 11.6 14.2 17.4 21.6 27.3 11.6% 9.0 11.0 13.5 16.6 20.7 12.6% 6.9 8.5 10.5 12.9 15.9


Based on assumptions given above we have derived the cost of equity of 12.3% and WACC of 10.6% using the CAPM method. The value of the company comes to SR17.4 offering a potential upside of 43.2% over the current market price of SR12.15 as on 10 March 2009.



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47

Min

ority

inte

rest

384

,395

3

87,0

41

349

,072

3

49,0

72

390

,067

4

20,8

57

466

,478

T

otal

sto

ck h

olde

rs’

equi

ty a

nd m

in in

t. 2

,367

,824

2

,337

,284

2

,186

,298

2

,269

,450

2

,443

,050

2

,635

,891

2

,921

,624

T

otal

equ

ity

and

Lia

bilit

ies

2,4

79,2

27

3,0

47,9

17

4,7

88,8

93

5,2

12,0

95

5,1

79,3

84

5,0

79,8

13

5,0

74,1

10

Sour

ce:

Com

pany

Acc

ount

s &

Glo

bal R

esea

rch



Inco

me

Stat

emen

tSa

hara

Pet

roch

emic

als

Com

pany

- S

AH

AR

ASR

000

2006

2007

2008

2009

F20

10F

2011

F20

12F

Mur

abah

a an

d ot

her

inco

me

31

,595

14,3

92

69

-

-

-

-

R

even

ue f

rom

Alw

aha

PP p

lant

-

-

-

9

57,1

67

1

,128

,385

1,4

01,6

62

1

,708

,224

Sh

are

of in

com

e fr

om a

ssoc

iate

5

,659

2,3

65

3

,324

3,6

56

4

,022

4,4

24

4

,867

T

otal

rev

enue

1

97,6

52

16,

757

3

,393

960

,823

1

,132

,407

1

,406

,087

1

,713

,090

C

ost

and

expe

nses

C

ost o

f m

anuf

actu

ring

PP

-

-

-

4

98,1

84

600

,523

7

54,3

91

929

,969

D

epre

ciat

ion

-

-

-

3

08,1

71

322

,171

3

36,1

71

350

,171

O

ther

s

9

94

2

,468

41,1

29

45

,242

49,7

66

54

,743

60,2

17

Tot

al C

osts

& E

xpen

ses

13,

642

12,

381

41,

129

8

51,5

97

9

72,4

60

1,1

45,3

05

1,3

40,3

56

Pre-

oper

ativ

e an

d flo

tatio

nco

sts

16

,404

4,9

80

3

,776

-

-

-

-

Fi

nanc

ial c

harg

es

8

47

-

-

23

,942

23,9

42

23

,344

20,9

21

Tot

al c

ost

incl

udin

g fin

anci

alch

arge

s

3

0,89

3

1

7,36

1

4

4,90

5

875

,539

996

,402

1

,168

,648

1

,361

,278

N

et in

com

e be

fore

min

orit

y in

tere

st

166

,759

(6

04)

(41,

512)

85,

284

1

36,0

05

2

37,4

38

3

51,8

13

Min

ority

inte

rest

2

,505

(2,

735)

944

-

-

-

-

Net

(los

s) in

com

e be

fore

zak

at

169

,264

(

3,33

9)

(4

0,56

8)

8

5,28

4

136

,005

237

,438

351

,813

Z

akat

4

,464

1,7

73

-118

1

2,1

32

3

,400

5,9

36

8

,795

N

et (

Los

s) I

ncom

e

164

,800

(

5,11

2)

(3

9,38

7)

8

3,15

2

132

,605

231

,502

343

,017

P

&L

App

ropr

iati

on

Ope

ning

Bal

ance

2867

66

4

35,0

86

103

,248

63,8

61

138

,698

2

58,0

42

396

,944

Pr

ofitf

orcu

rren

tyea

r

1

64,8

00

(

5,11

2)

(

39,3

87)

83

,152

1

32,6

05

231

,502

3

43,0

17

Profi

tava

ilabl

efo

rap

prop

riat

ion

451

,566

4

29,9

74

63

,861

1

47,0

13

271

,303

4

89,5

44

739

,961

T

rans

fer

to o

ther

res

erve

s

(

16,4

80)

(6

9)

-

(

8,31

5)

(

13,2

60)

(23

,150

)

(

34,3

02)

Inte

rim

div

iden

d

-

-

-

-

-

-

-

Fina

l div

iden

d

-

-

-

-

-

(69

,451

)

(1

02,9

05)

Bon

us is

sue

-

(3

26,6

57)

-

-

-

-

-

E

ndin

g B

alan

ce

435

,086

103

,248

6

3,86

1

138

,698

258

,042

396

,944

602

,754

So

urce

: C

ompa

ny A

ccou

nts

& G

loba

l Res

earc

h



Cas

h F

low

Sta

tem

ent

Saha

ra P

etro

chem

ical

s C

ompa

ny -

SA

HA

RA

SR 0

0020

0620

0720

0820

09F

2010

F20

11F

2012

FO

pera

ting

act

ivit

ies

N

et (

Los

s) in

com

e be

fore

Zak

at

169,

264

(

3,33

9)

(40,

568)

8

5,28

4

136,

005

23

7,43

8

351,

813

Dep

reci

atio

n

161

305

1

,213

308,

171

32

2,17

1

336,

171

35

0,17

1 W

rite

-off

pro

pert

y an

d eq

uipm

ent

-

-

70

-

-

-

-

End

of

serv

ice

inde

mni

ties

1,4

08

1,6

53

4,0

21

-

-

-

-

Shar

e of

inco

me

from

ass

ocia

te

(5,

659)

(

2,36

5)

(3,

324)

(

3,65

6)

(4,

022)

(

4,42

4)

(4,

867)

Min

ority

inte

rest

(

2,50

5)

2

,735

(

944)

-

-

-

-

Subt

otal

(

6,59

5)

2,3

28

1

,036

3

04,5

14

318

,149

3

31,7

47

345

,304

W

orki

ng c

apita

l cha

nges

O

ther

rec

eiva

bles

and

pre

paym

ents

.

3

,953

(

769)

(

1,10

5)

(16,

165)

(

3,43

2)

(5,

474)

(

6,14

0)A

ccou

nts

paya

bles

and

Oth

er L

iabi

litie

s.

79,

546

(

6,59

8)

15,

430

2,4

47

1

7,15

8

27,

368

3

0,70

0 R

eten

tions

pay

able

2

0,22

8

65,

359

4

5,33

8

13,

093

1

4,40

2

15,

842

1

7,42

6 Su

btot

al o

f w

orki

ng c

apit

al c

hang

es

266,

396

57

,992

59,6

63

(62

6)

28,1

28

37

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41,9

86

C

ash

from

ope

ratio

ns

56,

981

2

0,13

1

389,

173

48

2,28

2

606,

921

73

9,10

3

E

nd o

f se

rvic

e in

dem

nitie

s pa

id

(

144)

(

34)

(10

3)

761

837

920

1

,012

Z

akat

pai

d

(39,

038)

(

4,41

9)

(

401)

(

2,13

2)

(3,

400)

(

5,93

6)

(8,

795)

Net

cas

h flo

wfr

omop

erat

ing

acti

viti

es

2

27,2

14

52

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19,6

27

387

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4

79,7

19

601

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7

31,3

20

Inve

stin

g ac

tivi

ties

A

dditi

ons

to p

rope

rty

and

equi

pmen

t

(

188)

(

1,29

6)

(5,

423)

(27

9)

(

293)

(30

8)

(

323)

Add

ition

s to

cos

t of

proj

ects

und

er d

evel

opm

ent

(9

4,50

8)

(12,

231)

(1

1,61

3)

(95,

000)

(9

5,00

0)

(95,

000)

(9

5,00

0)Pr

ocee

ds f

rom

dis

posa

l of

prop

erty

-

12

28

-

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-

-

Add

ition

s to

inta

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le a

sset

s

(52,

334)

(4

6,16

3)

(14,

048)

-

-

-

-

Add

ition

s to

pro

ject

s un

der

cons

truc

tion

(62

3,01

3)

(1,

265,

248)

(

1,29

7,16

3)

(

900,

000)

(20

0,00

0)

(

200,

000)

(20

0,00

0)

N

et c

ash

flow

from

inve

stin

gac

tivi

ties

(

443,

559)

(1,

324,

926)

(1,

328,

219)

(

995,

279)

(

295,

293)

(

295,

308)

(

295,

323)

Fin

anci

ng a

ctiv

itie

s

Due

to b

anks

-

22

9,00

0

360,

032

36

0,96

8

(

200,

000)

(20

0,00

0)

(

200,

000)

Proc

eed/

paym

ent f

rom

long

term

loan

-

20

0,00

0

757,

670

-

-

(9

6,28

7)

(98,

709)

Div

iden

ds p

aid

-

-

-

-

-

(6

9,45

1)

(

102,

905)

Adv

ance

s/'p

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ents

aga

inst

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amic

fac

ilitie

s -

112,

530

56

2,65

0

(37,

219)

(3

8,70

8)

(40,

256)

(4

1,86

6)C

ontr

ibut

ions

by

min

ority

sha

reho

lder

s

386,

900

-

1

14

-

40,

995

3

0,79

0

45,

621

Cas

h flo

wfr

omfin

anci

ngac

tivi

ties

386

,900

5

41,5

30

1,

680,

466

323

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(19

7,71

3)

(37

5,20

4)

(39

7,85

9)

N

et c

hang

e in

cas

h an

d ca

sh e

quiv

alen

ts

1

70,5

55

(

730,

868)

371

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(28

3,72

8)

(

13,2

87)

(68

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)

38,1

38

Cas

h an

d ca

sh e

quiv

alen

ts a

t the

beg

inni

ng

641,

475

81

2,03

0

81,

162

45

3,03

6

169,

308

15

6,02

1

87,

415

Cas

h an

d ca

sh e

quiv

alen

ts a

t th

e en

d

8

12,0

30

81

,162

4

53,0

36

169

,308

1

56,0

21

87

,415

1

25,5

54

Sour

ce:

Com

pany

Acc

ount

s &

Glo

bal R

esea

rch



Fac

t Sh

eet

Saha

ra P

etro

chem

ical

s C

ompa

ny -

SA

HA

RA

20

0620

0720

0820

09F

2010

F20

11F

2012

FL

iqui

dity

Rat

ioC

urre

nt R

atio

(x)

9.13

0.27

0.67

0.18

0.21

0.17

0.31

OC

PS (

SR)

1.21

0.28

0.10

2.07

2.56

3.21

3.90

Pro

fitab

ility

Rat

ios

EB

ITD

A M

argi

n85

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-19.

9%N

M40

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40.5

%40

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41.0

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et P

rofit

Mar

gin

83.4

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NM

8.7%

11.7

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20.0

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OA

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Lev

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Deb

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x)

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urce

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res

pect

ive

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10t

h 20

09

This Page is Intentionally Left Blank

Company

Sahara Petrochemical Company

Recommendation

Buy

Tickers

SPC AB (Bloomberg)2260.SE (Reuters)

Price (SR)

12.15

Disclosure

1,10

Disclosure Checklist

This material was produced by Global Investment House KSCC (‘Global’),a firm regulated by the Central Bank ofKuwait. This document is not to be used or considered as an offer to sell or a solicitation of an offer to buy anysecurities. Global may, from time to time,to the extent permitted by law, participate or invest in other financingtransactions with the issuers of the securities (‘securities’), perform services for or solicit business from such issuer,and/or have a position or effect transactions in the securities or options thereof. Global may, to the extent permittedby applicable Kuwaiti law or other applicable laws or regulations, effect transactions in the securities before thismaterial is published to recipients.Information and opinions contained herein have been compiled or arrived by Global from sources believed tobe reliable, but Global has not independently verified the contents of this document. Accordingly, no representationor warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy,completeness or correctness of the information and opinions contained in this document. Global accepts no liabilityfor any loss arising from the use of this document or its contents or otherwise arising in connection therewith.This document is not to be relied upon or used in substitution for the exercise of independent judgement. Globalshall have no responsibility or liability whatsoever in respect of any inac curacy in or ommission from this orany other document prepared by Global for, or sent by Global to any person and any such person shall beresponsible for conducting his own investigation and analysis of the information contained or referred to in thisdocument and of evaluating the merits and risks involved in the securities forming the subject matter of this orother such document.Opinions and estimates constitute our judgment and are subject to change without prior notice.Past performanceis not indicative of future results. This document does not constitute an offer or invitation to subscribe for orpurchase any securities, and neither this document nor anything contained herein shall form the basis of anycontract or commitment what so ever. It is being furnished to you solely for your information and may not bereproduced or redistributed to any other person.Neither this report nor any copy hereof may be distributed in any jurisdiction outside Kuwait where its distributionmay be restricted by law. Persons who receive this report should make themselves aware of and adhere to anysuch restrictions. By accepting this report you agree to be bound by the foregoing limitations.

The following is a comprehensive list of disclosures which may or may not apply to all our researches.Only the relevant disclosures which apply to this particular research has been mentioned in the tablebelow under the heading of disclosure.

Global Research: Equity Ratings DefinitionsGlobal Rating DefinitionBuy Fair value of the stock is >10% from the current market priceHold Fair value of the stock is between +10% and -10% from the current market priceReduce Fair value of the stock is between -10% and -20% from the current market priceSell Fair value of the stock is < -20% from the current market price

1. Global Investment House did not receive and will not receive any compensation from the companyor anyone else for the preparation of this report.

2. The company being researched holds more than 5% stake in Global Investment House.3. Global Investment House makes a market in securities issued by this company.4. Global Investment House acts as a corporate broker or sponsor to this company.5. The author of or an individual who assisted in the preparation of this report (or a member of his/her

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