Saudi Basic Industries Corporation - SABIC´ركة-البلاد-المالية... · 30 September 2013 2 Saudi Basic Industries Corporation - SABIC Propylene, Low Density Poly Ethylene

30 September 2013

1

Saudi Basic Industries Corporation - SABIC

10.4

16.0 17.8

13.8

17.7 20.1

21.3 19.2

21.8

25.9 26.0

21.6

26.2 25.0

26.9

20.2

23.5

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Q12009

Q2 Q3 Q4 Q12010

Q2 Q3 Q4 Q12011

Q2 Q3 Q4 Q12012

Q2 Q3 Q4 Q12013

تطور األرباح الربعية المجمعة

Saudi Basic Industries (SABIC) was inaugurated in 1976 in Riyadh as one of the leading petrochemicals company. SABIC is the fifth largest petrochemical producer in the world according to ICIS petrochemicals ranking based on 2012 annual report. SABIC is composed of six business units Chemicals, Polymers, Performance Chemicals, Fertilizers, Metals and Innovative Plastics. The company`s products are sold globally with one third of its revenue from Asia while sales to the middle east and Europe comprises 26% and 19%, respectively.

26%

4%

19% 33%

8%

10%

Geographical Breakdown

Middle East

Africa

Europe

Asia

USA

Other

Overweight Recommendation

115.70 Fair Value (SR) 97.00 Price as of 25

th of September 2013 (SR)

19.3% Expected return

Company data

2010.SE Tadawul symbol 100.50 52- week high (SR)

86.25 52-week low(SR) 7.5% YTD change

4,011 Average trading volume (thousand shares) 291,000 Market Cap (million SR)

77,600 Market Cap (million USD) 3,000 Number of shares issued (million) 21.6% Free float

Last 12 months* 2012 2011 2010

Financial indicators

151,970 189,898 189,026 185,884 Revenues 21,529 29,242 24,780 24,812 Net Income

7.18 9.75 8.26 8.27 EPS 13.52 9.95 11.74 11.73 PE ratio 1.75 1.54 1.47 1.45 P/BV 3.6% 5.2% 5.2% 5.2% Dividend yield

31731% 1.33% -3.31% -737% Net Income growth *Ending Q2 2013

Source: Albilad Capital estimates, Tadawul

For more information you may contact: Turki Fadaak

Research & Advisory Manager [email protected] Or Albilad Capital Head Office:

Tel : +966 11 203 9892 Fax : +966 1479 8453 P.O. Box 041

Riyadh 00400

90

95

100

105

110

115

120

SABIC Tadawul Petrochemicals Index Tadawul Index

Initiation of Coverage

86%

3% 7%

4%

Revenues Breakdown H1 2013

Petrochemicals

Fertilizers

Metals

Corporate

Source: Financial Statements of SABIC

Source: Financial Statements of SABIC

30 September 2013

2


Company Overview

The company operates through a structure of wholly owned subsidiaries, affiliates and joint ventures. The company owns 42.99% of Saudi Arabia Fertilizers Company (SAFCO), 51.95% of Yanbu National Petrochemical Company (Yansab) and 35% of Saudi Kayan. Safco is one of the leading fertilizers’ producers in KSA. The company produces nitrogen fertilizers such as Urea and Ammonia with total revenue and net income of SAR 4,980 million and SAR 3,866 million, respectively. Kayan produces Ethylene, Propylene, Polyethylene, Ethylene Glycol, Acetone and Natural Alchol. In 2012, Kayan`s revenue reached SAR 9,842 million and net loss of SAR 772 million. Yansab produces Ethylene, Propylene, Low Density Poly Ethylene (LDPE),High Density Poly Ethylene (HDPE), Poly Propylene, Ethylene Glycol, Methyl Tertiary Butyl Ether (MTBE) and Aromatics. In 2012, Yansab top line and bottom line amounted to SAR 9,299 million and SAR 2,466 million, respectively.

800

900

1,000

1,100

1,200

1,300

1,400

1,500

USD

/ T

on

Ethylene

1,200

1,250

1,300

1,350

1,400

1,450

1,500

1,550

USD

/ T

on

HDPE

We think SABIC`s profitability will stabilize during the current year on the back of stable demand from Asia. However, during our meeting with SABIC`s management, they indicated that the austerity and economic slowdown in Europe led to oversupply and might lead to dumping of petrochemical products in other markets. Thus, SABIC has implemented a restructuring process in its European operations and laid off 1,050 of its employees. Management thinks the Asian continent in general and China in particular will continue to show robust demand. We think bottom line will start growing in 2014 going forward thanks to the high contribution of Asia to top line and recent improvement in the U.S. economic growth.

1,100

1,150

1,200

1,250

1,300

1,350

1,400

1,450

1,500

1,550

USD

/ T

on

Propylene

1,250

1,300

1,350

1,400

1,450

1,500

1,550

1,600

USD

/ T

on

Polypropylene

Source: Albilad Capital research Source: Albilad Capital research


30 September 2013

3


Sector Overview

During the past decade, Saudi Arabia succeeded in diversifying and increasing its non-oil GDP through investing in high value added industries such as petrochemicals. The industry was established to focus on upstream products, but lately the producers expanded on both midstream and downstream segments, which will be the catalyst for growth going forward. The transformation is due to the heavy reliance of the upstream segment on low cost feedstock combined with the significant increase in local energy consumption. The Kingdom`s domestic fuel consumption is expected to reach 4 million Barrels of Oil Equivalents (BOE) per day in 2013. Moreover, the feedstock agreements between ARAMCO and most of the Saudi petrochemicals producers expired at the end of 2011. Non-official sources noted that the agreements were extended until the end of 2013, without revealing the change in future pricing. Currently, ARAMCO provides SABIC and other chemical producers with natural gas for USD 0.75 for every Million British Thermal Unit (MBTU) compared to USD 4 and USD 10 per MBTU in North America and Europe, respectively. Moreover, ARAMCO provides the producers with Naphtha at a 30% discount to the globally traded price.

1,986 2,110

2,192 2,270

1,075 1,161 1,172 1,187

570 583 583 625

0

500

1000

1500

2000

2500

2011 2012 2013 2014

Tho

usa

nd

Bar

rel o

f O

il Eq

uiv

ale

nt

Local Energy Consumption (BOE)

Refined Fuel Natural Gas Crude Oil

56%

15%

29%

Expected Local Energy Consumption 2014

Refined Fuel

Crude Oil

Natural Gas55%

15%

30%

Expected Local Energy Consumption 2013

Refined Fuel

Crude Oil

Natural Gas

According to Meed, Saudi Arabia plans to construct mega petrochemical projects with a total investment cost of USD 70 billion through ARAMCO, SABIC, and Al Farabi. The projects are likely to be established close to oil refineries in Jazan, Yanbu, and Ras Al Tannoura.

Source: Ministry of Economy and Planning

Source: Ministry of Economy and Planning Source: Ministry of Economy and Planning

30 September 2013

4


Sector Overview

In the GCC, petrochemicals production grew by 5.5% during 2012. Despite the slowdown in the international market, the petrochemicals’ production capacity increased to 127.8 million ton in 2012 versus 121.1 million ton in 2011, according to GPCA. In 2012, the petrochemicals’ production capacity in Saudi Arabia increased by 6 million ton to 86.4 million ton, accounting for more than half of the capacity in the GCC. On the other hand, the global petrochemical production declined by 2.6% and 3.8% during 2011 and 2012, respectively. For the fertilizers, the global Urea production capacity reached 198 million ton during 2012, which is expected to increase to 229 million ton in 2014 as new production lines come on stream, mainly from China and Algeria. Moreover, Analysts expect that global capacity to reach 259 million ton on the back of new shale oil discoveries in North America which in turn will attract more nitrogen fertilizers producers. Global Urea production also grew by 2.96% reaching 162 million ton supported by the advance of food and commodity prices. Therefore, we expect the strong global growth is expected to grow more than 4% in 2013. However, we see lower capacity utilization rates of 75% by 2020 from the current level of 82% as new capacities come on stream. The Middle East, China and Russia are among the main Urea exporters while the Unites States, European Union and India are the largest importers. Global capacity of ammonia also increased by 2.7% to 213 million ton and is expected to increase to 263 million ton by 2020. Global consumption also is expected to rise to 204 million by 2020 from its current level of 172 million ton. On the other hand, capacity utilization rate is expected to decline from its current levels of 81% to 77% by the end of 2020.

As for metals, Saudi steel demand grew by 10% during 2012 driven by the increase in government spending and more housing projects. In Saudi Arabia, steel demand increased to 7 million ton and steel production reached 5 million ton, resulting in a deficit of 2 million ton. In fact, SABIC’s steel production capacity is estimated at 2.8 million ton, followed by Ittefaq with 0.3 million ton, Al Rajhi with 500 thousand ton, Al Yamamah with 500 thousand ton, Al Mekerash with 300 thousand ton, and Al Jawhara with 100 thousand tons. In fact, local production faced fierce competition with imported steel. The Turkish steel price reached SAR 2,700 per ton compared to SABIC’s selling price of SAR 3,111 per ton. We expect that the entry of imported steel at competitive prices will further spark competition in the local market and reduce the dependence on domestic production, despite the reliance of governmental projects on locally produced steel. We, therefore, believe that SABIC will be adversely affected by the increased competition in the local market, which will result in either lower profit margins or decreased sales volume.

68%

70%

72%

74%

76%

78%

80%

82%

84%

86%

88%

-

50

100

150

200

250

300

Ure

a /

Mill

ion

Ton

Global Production & Consumption of Urea

Production Capacity Consumption Capacity Utilization

300

350

400

450

500

550

600

650

700

750

USD

/ T

on

Ammonia Urea


30 September 2013

5


SABIC issued one billion dollar denominated bonds with a five-year maturity. The bonds issued were the first approach of SABIC to the fixed income market since 2010. The issue attracted more than five billion dollars due to the scarcity of dollar denominated instruments from highly credit rated issuers like SABIC. The trench was issued with a spread of 130 basis points above U.S. treasuries. It is worthwhile mentioning that SABIC`s credit rating is A1/A+/A+ and selected Citi Group, HSBC, Mizuho and RBS as lead managers and financial advisors for its bond issuance. Jubail United Petrochemical Company, which is 75% owned by SABIC, awarded The Linde Group to build the world’s largest carbon dioxide (CO2) purification and liquefaction plant. The plant will be located in Jubail Industrial complex and designed to compress and purify 1,500 tons per day of raw carbon dioxide coming from two nearby ethylene glycol plants. The purified gaseous will be pipelined through the piping corridor of the Royal Commission of Jubail to three SABIC-affiliated companies for enhanced methanol and urea production. Methanol is a basic commodity for the chemical industry and urea is a main nitrogen fertilizer. The plant will also be capable of producing 200 tons per day of liquid CO2 with food grade quality, which will be stored and supplied to the beverage and food industry. In early august King Abdullah, custodian of the two holy mosques, launched and laid foundation stones for SAR 81.44 billion projects for SABIC. The projects launched in Al Jubail Industrial City include a complex of the Saudi Kayan Petrochemicals (Saudi Kayan), expansion of the National Natural Gas Company (GAS), expansion of Hadeed, industrial rubber in the Saudi Jubail Petrochemical Co. (Kemya), pavement work at the port for petrochemical projects, Polyoxymethylene project of the National Methanol Company (Ibn Sina) and a project for Arabian Petrochemical Co. (Petrokemya), and the fifth plant of the Saudi Arabian Fertilizer Company (SAFCO). In 2013, SABIC Hadeed secured natural gas from ARAMCO for its projects in Al Jubail and King Abdullah economic city in Rabegh. The company indicated that the commercial production of steel sheets, iron coils, copper sheets and rolled steel will start in 2018 from the two sites. SABIC plans to invest SAR 44 billion in new projects in the next five years. The company intends to finance the new expansions from bond issuance, bank facilities and retained earnings. The following projects are expected to start commercial production in the next eighteen months:

1) Saudi Kayan`s Natural Alcohol plant with annual production capacity of 50 thousand tons. The new manufacturing facility will commence production by the end of 2013.

2) Commercial logistics handling of polymers project in Al Jubail port, which will be delivered before the end of the current year. 3) SAFCO`s fifth production line of Urea with an annual capacity of 1.2 million ton and investment cost of two billion Riyals.

Commercial production will start in the third quarter of 2014 4) Fuel cost reduction project at the company`s Ammonia plant in Al Jubail to increase the capacity to 1,300 metric ton per day by

the end of 2013 5) Kayan`s N-Butanol plant which will commence production by the end of 2014. The project is a joint venture with Saudi

ARAMCO and Dow Chemicals with an investment cost of USD 500 million and annual capacity of 330 thousand tons. 6) Acrylonitrile, butadiene, styrene and sodium cyanide plant through a joint venture with Mitsubishi with an investment cost of

USD 561 million cost. SABIC expects commercial production by the end of 2014. 7) Industrial rubber plant and thermoplastics plant through a joint venture between Kemya and Exxon Chemical with production

capacity of 400 thousand ton. The company expects production to start in the second half of 2015 with an investment cost of USD 3.4 billion.

Latest Developments

30 September 2013

6


Net Income In 2102, SABIC’s revenues declined slightly by 1.46%, in comparison to the previous year, reaching SAR 089,126 million triggered by lower selling prices. Cost of goods sold increased by 5.43% to SAR 134,701 million, which led to a decline in the gross profit margin by 398 basis points to 28.74% versus 32.72% in 2100. The petrochemical segment’s revenues declined by 1.38% and the gross profit margin decreased to 08.39%. The fertilizer segment’s revenues also decreased by 0.78%, with a drop in the gross profit margin to 62.87%. The metals segment’s revenues also declined by 4.42% compared to 2100.

Gross profit per Segment (million SR) 1122 1121 Change

Petrochemicals Segment Revenues 218,735 217,905 -0.4% Gross profit 47,038 40,077 -14.8% Gross profit margin 21.5% 18.4% -3.1%

Fertilizer Segment Revenues 8,654 8,500 -1.8% Gross profit 5,706 5,344 -6.3% Gross profit margin 65.9% 62.9% -3.1%

Metals Segment Revenues 15,532 14,845 -4.4% Gross profit 2,829 3,004 6.2% Gross profit margin 18.2% 20.2% 2.0%

Source: Financial statements of SABIC, Albilad Capital estimates

Selling, general, and administrative expenses slightly increased by 0.73% to SAR 13,390 million. Interest expense dropped by 19.72% to SAR 2,402 million compared to 2011. Thus, the fiscal year ending December 2012 showed a decline in net income by 15.26% to SAR 24,780 million, compared to SAR 29,242 million in 2100. SABIC’s net income margin also decreased by 229 basis points to reach 03.00%. In the first half of 2013, revenues continued to decline by 3.31%, compared to 2012 first half, to SAR 91,732 million, mainly attributed to the drop in sales volume. The gross profit margin; however, increased to 29.50% versus 28.29% during 2012 first half, triggered by the decrease in cost of goods sold by 4.95% to SAR 64,667 million. During the first half of 2103, the petrochemical segment’s revenues declined by 3.63% but the gross profit margin increased to 09.28% compared to same period last year. The fertilizer segment’s revenues also decreased by 0.68%, with an increase in the gross profit margin to 61.13%. The metal segment’s revenues slightly decreased by 0.63% compared to the first half of 2012, witnessing a decline in the gross profit margin to 16.44%.

Gross profit per Segment (million SR) H1 1121 H1 1122 Change

Petrochemicals Segment Revenues 108,825 104,872 -3.6% Gross profit 20,310 20,222 -0.4% Gross profit margin 18.7% 19.3% 0.6%

Fertilizer Segment Revenues 3,781 3,717 -1.7% Gross profit 2,210 2,232 1.0% Gross profit margin 58.4% 60.0% 1.6%

Metals Segment Revenues 7,881 7,831 -0.6% Gross profit 1,324 1,287 -2.8% Gross profit margin 16.8% 16.4% -0.4%


Selling, general, and administrative expenses increased by 2.12% to SAR 6,041 million. Thus, during 2013 first half, the company realized an increase in net income by 0.25% recording SAR 12,606 million versus SAR 12,574 million in 2012 first half. In addition, the company showed an increase in net profit margin by 49 basis points to reach 13.74%.

Financial Analysis

30 September 2013

7


Financial Analysis

Balance Sheet In 2012, total assets grew by 1.70%, in comparison to the previous year, reaching SAR 338,434 million and declined in 2013 first half by 3.98% to SAR 324,973 million, compared to the ending balance in December 2012. Key highlights:

1. Fixed assets reached SAR 165,440 million and SAR 162,001 million by the end of 2012 and 2013 first half, respectively. The Increase in fixed assets was due to maintenance capital expenditures amounting to SAR 10,861 million during 2012, which represents 5.75% of 2012 revenues.

2. Increase in 2012 inventory by 9.64% compared to 2011 and the decrease in 2013 first half ending balance by 1.14% compared

to the same period last year to reach SAR 31,083 million.

3. Decrease in 2013 first half accounts receivable ending balance by 8.40% versus the same period last year to reach SAR 27,954 million in June 2013.

4. Increase in 2012 accounts payable ending balance by 19.63% compared to 2011 and by 0.43% during 2013 first half compared

to the same period last year to reach SAR 17,854 million in June 2013.

0

20

40

60

80

100

120

140

160

180

200

2008 2009 2010 2011 2012

Bill

ion

SR

Revenues Net Income

0

50

100

150

200

250

300

350

400

2008 2009 2010 2011 2012

Bill

ion

SR

Total Assets Total Liabilities

46%

8% 3%

43%

Net Income Breakdown H1 2013

Petrochemicals

Fertilizers

Metals

Corporate

Source: Financial statements of SABIC, Albilad Capital estimates Source: Financial statements of SABIC, Albilad Capital estimates


30 September 2013

8


Feedstock Cost

Saudi petrochemicals producers in general and SABIC in particular have been relying on ARAMCO`s subsidized feedstock of Naphtha and natural gas for more than a decade. Saudi ARAMCO has been providing petrochemical companies with Naphtha at a 30% discount to the globally price and natural gas at 75 cents per MBTU. SABIC is planning to decrease its reliance on low feedstock from KSA by investing in petrochemical projects globally. The company`s CEO noted that SABIC is looking for establishing petrochemical plants in North America to utilize the evolution of shale gas. Region Natural Gas Price (USD) South East Asia 13-14 North America 3-4 Europe 10-11 Qatar 1.25-2 Egypt 1.5-3 KSA 0.75 Source: Albilad Capital estimates

Most of the contractual agreements between the petrochemical producers and ARAMCO expired by the end of 2011. However, unofficial sources mention that the current pricing mechanism has been extended until the end of 2013. We performed three scenario analysis for probable increase in natural gas prices. Therefore, we see SABIC`s earnings declining by 10.57% for an increase of 33% in the price natural Gas. Actual Scenario 1 Scenario 2 Scenario 3 No change in Gas Price Gas Price of $1 Gas Price of $ 1.25 Gas Price of $ 1.5 Decline in Net Profit Margin - 1.41% 2.53% 3.46% Net Profit Margin 13.35% 11.94% 10.82% 9.89% Net Income (million SR) 24,812 22,189 20,114 18,386 Expected Change in Net Income - -10.57% -18.93% -25.90%

30 September 2013

9


Valuation and Recommendation

We valued SABIC`s share using Price to Earnings ratio, Enterprise Value to EBITDA and Enterprise Value to Sales. Our weighted average fair value is SAR 115.7, which is 19.3% higher than the current stock price of SAR 97 implying an Overweight recommendation.

Company Net Income (million SR)

Market Cap. (million Sr)

EV (million SR) PE Multiple EV/EBITDA EV/Sales

Methanol Chemicals Co 54 1,604 2,691 29.51 10.33 3.20 National Petrochemical Co (397) 10,152 25,653 (25.60) 155.28 9.53 Saudi Basic Industries Corp 24,812 291,000 361,102 11.73 6.62 1.94 Saudi Arabian Fertilizer Co 3,920 49,583 46,417 12.65 11.96 9.35 National Industrialization Co 1,318 18,261 34,676 13.86 7.37 1.94 Alujain Corp 47 1,298 3,181 27.87 12.41 1.72 Nama Chemicals Co (25) 1,574 2,414 (61.75) 29.10 3.38 Saudi Industrial Investment Group 527 11,835 28,986 22.46 38.48 26.57 Sahara Petrochemical Co 360 7,087 8,625 19.67 19.41 4.25 Yanbu National Petrochemicals Co 2,414 33,469 39,191 13.86 10.27 4.40 Saudi International Petrochemical Co 552 9,168 15,610 16.61 9.86 4.20 Advanced Petrochemicals Co 472 5,494 5,757 11.64 8.17 2.09 Saudi Kayan Petrochemical Co (766) 18,750 47,490 (24.48) 23.75 5.00 Rabigh Refining & Petrochemicals Co (417) 13,490 33,980 (32.32) 20.45 0.61 Weighted Average - - - 14.38 8.76 2.20 Source: Tadawul, Albilad Capital Estimates

Fair Value 115.70

Share Price 97.00 Expected Return 19.3%

Recommendation Overweight

30 September 2013

10


Balance sheet (million SR) H1

2012 H1

2013 Change Balance sheet (million SR) 0202 0200 0200 Change Current Assets 138,216 124,310 -10.1% Current Assets 117,099 132,401 136,295 2.9%

Investment in Affiliated Companies 10,098 13,543 34.1% Investments 8,904 9,701 10,382 7.0%

Fixed Assets 165,060 162,001 -1.9% Fixed Assets 164,889 165,805 165,440 -0.2%

Other Long Term Assets 24,991 25,118 0.5% Other Long Term Assets 25,352 24,877 26,317 5.8%

Total Assets 338,365 324,973 -4.0% Total Assets 316,245 332,784 338,434 1.7%

Current Liabilities 49,847 39,867 -20.0% Current Liabilities 44,305 43,070 48,343 12.2%

Long Term Debt 85,073 71,547 -15.9% Long Term Debt 93,848 87,907 79,625 -9.4%

Other Long Term Liabilities 13,799 13,501 -2.2% Other Long Term Liabilities 11,946 12,601 12,228 -3.0%

Shareholders' Equity 189,646 200,058 5.5% Shareholders' Equity 166,147 189,206 198,238 4.8%

Liabilities and Shareholders' Equity 338,365 324,973 -4.0% Liabilities and Shareholders' Equity 316,245 332,784 338,434 1.7%

Income statement (million SR) H1

2012 H1

2013 Change

Income statement (million SR) 0202 0200 0200 Change Revenues 94,874 91,732 -3.3% Revenues 151,970 189,898 189,026 -0.5%

Cost of Revenues 68,035 64,667 -4.9% Cost of Revenues 103,423 127,768 134,701 5.4%

Gross Profit 26,839 27,065 0.8% Gross Profit 48,547 62,130 54,325 -12.6%

Selling, General, and Admin.

Expenses

5,916 6,041 2.1% Selling, General, and Admin.

Expenses

10,654 13,292 13,390 0.7%

Net Interest Expense 1,270 934 -26.5% Net Interest Expense 3,394 2,993 2,402 -19.7%

Other Expenses/(Income) (919) (669) -27.2% Other Expenses/(Income) (1,256) (2,039) (2,312) 13.3%

Total Other Expenses/(Income) 6,266 6,306 0.6% Total Other Expenses/(Income) 12,792 14,245 13,480 -5.4%

Net Income Before Zakat 20,572 20,759 0.9% Net Income Before Zakat 35,754 47,885 40,844 -14.7%

Zakat 1,300 1,150 -11.5% Zakat 2,500 2,600 2,500 -3.8%

Minority Interest 6,698 7,003 4.6% Minority Interest 11,726 16,043 13,564 -15.5%

Net Income 12,574 12,606 0.2% Net Income 21,529 29,242 24,780 -15.3%

Cash flow statement (million SR) H1

2012 H1

2013 Change Cash flow statement (million SR) 0202 0200 0200 Change Net Income Before Zakat 20,572 20,759 0.9% Net Income Before Zakat 35,754 47,885 40,844 -14.7%

Depreciation and Amortization 6,558 6,605 0.7% Depreciation and Amortization 10,610 11,815 13,413 13.5%

Inventory 22 3,415 0.0% Inventory (2,352) (5,342) (3,035) -43.2%

Accounts Receivable 909 3,588 294.5% Accounts Receivable (8,356) (2,537) (116) -95.4%

Accounts Payable 1,389 (1,750) 0.0% Accounts Payable 5,181 (499) 3,216 0.0%

Other Changes in Cash-Operations (3,469) (1,044) -69.9% Other Changes in Cash-Operations (11,572) (9,178) (2,943) -67.9%

Change in Fixed Assets (4,750) (2,171) -54.3% Change in Fixed Assets (16,100) (10,642) (10,861) 2.1%

Other Changes in Cash-Investing 546 1,431 162.2% Other Changes in Cash-Investing (3,602) (1,608) (3,277) 103.8%

Change in Debt 3,237 (14,072) 0.0% Change in Debt 3,587 (8,097) (6,976) -13.8%

Dividends Paid (8,946) (8,671) -3.1% Dividends Paid (8,962) (11,831) (14,914) 26.1%

Minority Interest (7,955) (6,826) -14.2% Minority Interest (10,737) (10,225) (14,311) 40.0%

Beginning Cash Balance 50,389 51,431 2.1% Beginning Cash Balance 57,197 50,648 50,389 -0.5%

Ending Cash Balance 58,503 52,695 -9.9% Ending Cash Balance 50,648 50,389 51,431 2.1%

Source: Financial statements of SABIC

30 September 2013

11


Definitions

Earnings Per Share It is an indicator of the company's profit in Saudi Riyals per each outstanding share. It is calculated by dividing the company’s net income of by the number of outstanding shares.

Revenue Is the amount of income that is brought into a company by its business activities.

Gross profit A company’s profit after deducting the cost associated directly with its sales or production. Does not include indirect cost like depreciation, interest, tax and non-operating expense.

Price-to-earnings (P/E) Ratio It is the price paid by the company’ shareholders for the earnings of one of its shares. It is used to compare the prices of the company’s shares with that of another company within the same sector. If the P/E is higher than the sector’s average, it indicates either the share is overpriced or that there is a greater expectation for the company to generate more profits in the future, and vice versa. It is calculated by dividing the price of a share by the share’s earnings in Saudi Riyals

Book value per share The company's book value represents the value of the company in the event of liquidation or exit. Dividing the book value by the company’s number of issued shares represents the book value of a share.

Price-to-book (P/B) ratio It represents the market price per share vis-à-vis its book value. It is used to compare between companies within the same sector and comparing them to the sector’s average. If the number is higher than the average, it means that the company’s price is traded higher than its book value. This means that either the share is overpriced or that the company is in a growth state; and vice versa. The number is calculated by dividing the share’s market price by its book value.

Return on equity

It is a percentage representing the extent of the company's efficiency in achieving earnings from the shareholders’ investment. It is calculated by dividing the company’s net income by Shareholders' equity. The higher the percentage, the higher the efficiency, and vice versa.

Net Debt Total long-term debt after deducting cash on hand and in banks.

Enterprise Value It is the market capitalization plus net debt.

Time horizon We recommend using a Time horizon of 9 to 12 months, during which the current price might reach the Target price

Target price It is the price we expect the current share price to reach during the Time horizon.

Albilad Capital Rating Methodology Al-Bilad Capital uses its own evaluation structure, and its recommendations are based on quantitative and qualitative data collected by the analysts. Moreover, the evaluation system places covered shares under one of the next recommendation areas based on the closing price of the market, the fair value that we set and the possibility of ascent/descent.

Overweight: The Target share price exceeds the current share price by ≥ 05%. We expected the share price to reach the Target price over the

next 9-12 months Neutral: The Target share price exceeds the current share price by less than 15%. We expected the share price to reach the Target price

over the next 9-12 months

Revise: The Target share price is less than the current share price by less than 10%. We expected the share price to reach the Target price over the next 9-12 months

Underweight: The Target share price is less than the current share price by ≥ 01%. We expected the share price to reach the Target price over

the next 9-12 months

30 September 2013

12


Disclaimer AlBilad Investment Co. exerted utmost efforts to ensure that the information included in this report is accurate and correct. However, AlBilad Investment Co., its managers, and staff bear no liability whether explicitly or implicitly for the content of the report and no legal responsibility, whether directly or indirectly, for any results based on it.

This report should not be reproduced, redistributed, or sent directly or indirectly to any other party or published in full or in part for any purpose whatsoever without a prior written permission from AlBilad Investment Co.

We would also like to note that this information in no way constitutes a recommendation to buy or sell banknotes or make any investment decisions.

Any investment act taken by an investor based fully or partially on this report is the complete responsibility of the investor. This report is not meant to be used or seen as advice or an option or any other measure to be taken in the future. We recommend consulting a qualified investment advisor before investing in these investment tools.

AlBilad Investment Co. preserves all rights associated with this report.

Albilad Capital

Client Services E-mail: [email protected] Tel: +966-11-203-9888 Toll-free: 800-116-0001

Asset Management E-mail: [email protected] Tel: +966-11-203-9870

Research & Advisory E-mail: [email protected] Tel: +966-11-203-9892

Brokerage E-mail: [email protected] Tel: +966-11-203-9840

Investment Banking E-mail: [email protected] Tel: +966-11-203-9859

Documents

Saudi Basic Industries Corporation - SABIC´ركة-البلاد-المالية... · 30 September 2013 2 Saudi Basic Industries Corporation - SABIC Propylene, Low Density Poly Ethylene